As filed with the Securities and Exchange Commission on January __, 1999
Registration No. 333-68167
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CARDIA, INC.
(Name of small business issuer in its charter)
MINNESOTA 3842 41-1923885
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
501 EAST HIGHWAY 13
BURNSVILLE, MINNESOTA 55337
(612) 890-1123
(Address and telephone number of registrant's principal
executive offices and principal place of business)
JOSEPH A. MARINO
CARDIA, INC.
501 EAST HIGHWAY 13
BURNSVILLE, MINNESOTA 55337
(612) 890-1123
(Name, address and telephone number of agent for service)
------------------------
COPIES OF COMMUNICATIONS TO:
PATRICK DELANEY
JEFFREY N. SAUNDERS
LINDQUIST & VENNUM P.L.L.P.
4200 IDS CENTER
80 SOUTH EIGHTH STREET
MINNEAPOLIS, MN 55402
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Approximate date of commencement of proposed sale to the public: AS SOON AS
POSSIBLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT
------------------------
If this form is filed to register additional securities, for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act Registration Statement Number of earlier effective
Registration Statement for the same offering: [ ]
If this form is a post-effect amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act Registration
Statement Number of the earlier effective Registration Statement for the same
offering: [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
Registration Statement Number of the earlier effective Registration Statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
====================================================================================================================
PROPOSED PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO BE MAXIMUM OFFERING AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED PRICE PER UNIT PRICE REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------
Common stock, $0.01 par value 500,000 $0.01 $5,000 $75.17(1)
====================================================================================================================
Common stock, underlying rights 500,000 $1.00 $500,000 $139.00
$0.01 par value
====================================================================================================================
Rights(2) 500,000 -(3) -(3) -(3)
====================================================================================================================
(1) Computed based on the book value of the net assets as of September 30,
1998 contributed to the Registrant in accordance with Rule 457(f)(2) of
the Securities Act of 1933, as amended.
(2) One non-transferable right to purchase one share of common stock will
be issued for each share of common stock outstanding. The rights will
not be transferable.
(3) Pursuant to Rule 457(g)(3), no separate registration fee is required
with respect to the rights.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
-------------------------------
SUBJECT TO COMPLETION, DATED JANUARY __, 1999
DISTRIBUTION AND
RIGHTS OFFERING
PROSPECTUS
CARDIA, INC.
DISTRIBUTION OF 375,000 SHARES OF COMMON STOCK
RIGHTS OFFERING OF 500,000 SHARES OF COMMON STOCK
$1.00 PER SHARE
Cardia, Inc. We develop, manufacture and intend to
501 East Highway 13 market transcatheter closure devices
Burnsville, Minnesota 55337 for the repair of certain cardiac
(612) 890-1123 defects in children and adults. Our
products are intended to reduce the
need for open heart surgery to correct
certain cardiac defects.
Applied Biometrics, Inc. will This is the first time Cardia common
distribute one share of Cardia, Inc. stock will be owned by anyone other
common stock for every 11.563 shares than Applied Biometrics, Inc., and no
of Applied Biometrics, Inc. common public market currently exists for our
stock held as of January 25, 1999. shares. We expect our shares to be
traded on the over-the-counter market
under the trading symbol "CRDI."
Every person who is a Cardia, Inc. The price in the rights offering may
shareholder immediately after the not reflect the market price of our
distribution will receive the shares after the rights offering. The
nontransferable right to purchase one rights offering is a minimum/maximum
additional share of Cardia common offering; our Chief Executive Officer
stock for each share of Cardia common has guaranteed he will purchase the
stock he or she owns at a price of number of unpurchased shares, if any,
$1.00 per share. necessary to insure the minimum is
reached. The rights offering expires
on _________________, 1999.
----------------------------
This investment involves a high degree of risk. You should purchase shares only
if you can afford a complete loss. See "Risk Factors" beginning on page 6 of
this prospectus.
----------------------------
No vote of shareholders is required in connection with the distribution. No
proxies are being solicited. Please do not send a proxy to Cardia or Applied
Biometrics.
----------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
----------------------------
No person is authorized by Cardia to give any information or to make any
representation other than those contained in this prospectus, and, if given or
made, such information or representation must not be relied upon as having been
authorized.
----------------------------
The date of this Prospectus is _______________, 1999.
----------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this prospectus in
connection with the offer made hereby. If given or made, such information or
representation must not be relied upon as having been authorized by the Applied
Biometrics, Inc. or Cardia, Inc. This prospectus does not constitute an offer to
sell or solicitation of an offer to purchase by any person in any jurisdiction
in which such offer would be unlawful. Neither the delivery of this prospectus
nor any sale made hereunder shall under any circumstances create any implication
that the information contained herein is correct as of any time subsequent to
the date hereof.
------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.......................................................... 1
Risk Factors................................................................ 5
Use of Proceeds............................................................. 11
Dividend Policy............................................................. 11
Capitalization.............................................................. 12
Dilution.................................................................... 13
Management's Plan of Operation.............................................. 14
Business.................................................................... 15
Property.................................................................... 19
Legal Proceedings........................................................... 19
Available Information....................................................... 20
Management.................................................................. 21
Principal Shareholders...................................................... 24
Certain Transactions........................................................ 26
The Distribution............................................................ 27
The Rights Offering......................................................... 28
Material United States Federal Tax Considerations........................... 31
Description of Securities................................................... 33
Shares Eligible for Future Sale............................................. 34
Plan of Distribution........................................................ 35
Independent Accountants..................................................... 35
Legal Matters............................................................... 36
Index to Financial Statements............................................... F-1
------------------------
Until ____________, 1999 (25 days after the date of this prospectus),
all dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
1,000,000 SHARES
CARDIA, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
__________________, 1999
PROSPECTUS SUMMARY
We summarize in the following pages the most important terms of the
distribution and the rights offering. You should read the entire prospectus,
including the section titled "Risk Factors" which discusses the risks of this
investment, before making any investment decisions.
THE DISTRIBUTION
Applied Biometrics, Inc., or ABI, a Minnesota corporation, will
distribute a dividend of shares of the common stock of Cardia, Inc., a Minnesota
corporation, to the shareholders of ABI as a dividend. The distribution is
described in more detail below:
DISTRIBUTING ENTITY. Applied Biometrics, Inc., a Minnesota corporation.
SHARES TO BE DISTRIBUTED. Approximately 375,000 shares of common stock
of Cardia will be distributed to the shareholders of ABI. These shares represent
75% of the outstanding shares of Cardia common stock. Immediately prior to the
effective date of this prospectus Joseph A. Marino, the Chairman and Chief
Executive Officer of ABI and Cardia, purchased 25% of the outstanding shares of
Cardia common stock at a price of $1.00 per share, which is equal to the
subscription price in the rights offering described below.
DISTRIBUTION RATIO. One share of Cardia common stock will be
distributed to each ABI shareholder for every 11.563 shares of ABI common stock
held on the record date. Fractional shares will be rounded to the nearest whole
share. No payment need be made by, or will be accepted from, ABI shareholders
for Cardia common stock. Furthermore, ABI shareholders will not be required to
surrender or exchange ABI common stock to receive Cardia common stock.
BACKGROUND OF AND REASONS FOR THE DISTRIBUTION. Cardia has been formed
to pursue the further development and commercialization of certain transcatheter
closure devices used for the repair of certain cardiac defects. The closure
device business is very different from ABI's cardiac output measurement
business. The primary purposes of the distribution are to enable ABI to conserve
its liquid assets to continue to pursue its cardiac output measurement business,
to enable Cardia to raise immediately needed working capital through the rights
offering of its common stock which will immediately follow the distribution, and
to permit ABI's shareholders to participate in both companies. The distribution
is also intended to permit ABI and Cardia each to:
* adopt strategies and pursue objectives appropriate to its
specific business;
* enable management to concentrate attention and financial
resources on its core business;
* make acquisitions and enter into transactions with strategic
partners by issuing its own equity securities;
* implement incentive compensation arrangements that are more
directly based on results of operations of its separate
business; and
* be recognized and evaluated by the financial community as a
separate and distinct business.
BUSINESS STRATEGY OF CARDIA. No significant market currently exists for
Cardia's closure devices. Cardia is marketing and selling a closure device for
the correction of patent ductus arteriosus, or PDA, defects on an experimental
basis in Europe. Cardia is currently focusing significant development and
regulatory approval efforts on a closure device for the correction of patent
foramen ovale, or PFO, defects in adults. Cardia believes the market for PFO
closure
1
devices will be significantly larger than that for PDA closure devices. Initial
development and regulatory approval efforts will take place in Europe.
INITIAL ASSETS OF CARDIA. The initial assets of Cardia will consist of
inventory, accounts receivable, fixed assets, intellectual property relating to
the closure device business and cash of $125,000. Concurrently with the
distribution, Cardia will commence a rights offering which is described in
detail below. Joseph A. Marino, the Chairman and Chief Executive Officer of ABI
and Cardia, has guaranteed to Cardia that he will purchase the number of shares
of Cardia common stock necessary to obtain subscriptions for not less than
400,000 shares in the rights offering. Accordingly, following the distribution
and the rights offering, the minimum beginning shareholders' equity of Cardia
will be $670,403.
RECORD DATE. Close of business on January 25, 1999.
DISTRIBUTION DATE. As soon as practicable after completion of the
rights offering.
DISTRIBUTION AGENT. Norwest Bank Minnesota, N.A.
MAILING OF STOCK CERTIFICATES. Certificates representing the shares of
Cardia common stock issued in the distribution will be mailed as soon as
practicable after the expiration of the rights offering.
RESULTS OF THE DISTRIBUTION. After the distribution, Cardia will be an
independent publicly held company which will continue to conduct its business as
described in this prospectus. ABI shareholders will own 74.5% and Joseph A.
Marino will own 25.5% (including shares to be distributed with respect to shares
of ABI common stock beneficially owned by Mr. Marino), respectively, of the
outstanding shares of Cardia common stock immediately following the
distribution.
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION. ABI shareholders
will not recognize dividend income as a result of the distribution unless the
fair market value of the Cardia common stock received in the distribution
exceeds the aggregate basis of ABI common stock held by a shareholder
immediately before the distribution. ABI has received the opinion of Lindquist &
Vennum P.L.L.P. that ABI will not recognize any income for federal or state
income tax purposes by reason of the distribution. See "Material United States
Federal Tax Considerations - Federal Income Taxation of the Distribution."
THE RIGHTS OFFERING
Concurrently with the distribution, Cardia will commence a rights
offering of its common stock to its shareholders. The rights offering is
described in more detail below:
RIGHTS. Concurrently with the distribution, Cardia will distribute to
its shareholders rights to purchase an aggregate of approximately 500,000 shares
of Cardia common stock, on the basis of one right for each share of Cardia
common stock held by a shareholder immediately after the distribution. No Cardia
shares will be issued until the closing of the rights offering. Joseph A.
Marino, the Chairman and Chief Executive Officer of ABI and Cardia has advised
Cardia that he intends to exercise his rights to purchase an aggregate of
127,522 shares of Cardia common stock and up to an additional 272,478 shares of
Cardia common stock pursuant to the standby subscription guaranty discussed
below.
RIGHTS RECORD DATE. The rights record date will be January 26, 1999.
The rights subscription certificates will be mailed to Cardia shareholders as
soon as possible after the effective date of this prospectus.
2
BASIC SUBSCRIPTION PRIVILEGE. Rights holders are entitled to purchase
one share of Cardia common stock for each right held at the subscription price
of $1.00.
OVER-SUBSCRIPTION PRIVILEGE. Each holder of a right who elects to
exercise his or her basic subscription privilege in full may also subscribe, at
the subscription price, for those shares remaining unissued after satisfaction
of all subscriptions pursuant to the basic subscription privilege, if any. The
number of shares which may be subscribed for by a holder pursuant to the
oversubscription privilege may be any number of shares up to the number of
shares purchased by that holder pursuant to his or her basic subscription
privilege. If an insufficient number of shares is available to satisfy all
exercises of the oversubscription privilege, the available shares will be
allocated on a pro rata basis among holders who exercise the privilege, based on
the respective numbers of shares subscribed for by such holders pursuant to the
basic subscription privilege. See "The Rights Offering-Subscription Privileges"
and "Plan of Distribution."
STANDBY SUBSCRIPTION GUARANTY. Mr. Marino has provided Cardia a standby
subscription guaranty to subscribe, at the subscription price, for shares
remaining unissued after satisfaction of all subscriptions pursuant to the basic
subscription privilege and the oversubscription privilege, if any. This guaranty
is applicable only if less than 400,000 shares are subscribed for, and is
limited to that number of shares necessary to reach subscriptions for an
aggregate of 400,000 shares. See "The Rights Offering-The Rights" and "Plan of
Distribution."
SUBSCRIPTION PRICE. The subscription price for each share of Cardia
common stock is $1.00 in cash.
TRANSFERABILITY OF RIGHTS. The rights are not transferrable.
EXPIRATION DATE. The expiration date will be _____________, 1999,
unless extended by the Board of Directors of Cardia. See "The Rights
Offering-Expiration Date." If Cardia elects to extend the term of the rights
offering, it will issue a press release to that effect not later than the first
business day following the most recently announced expiration date. If Cardia
elects to extend the term of the rights offering by more than 14 calendar days,
it will, in addition, cause written notice of such extension to be promptly sent
to a holders of record on the rights record date. After the expiration date, the
rights will expire and have no value.
SUBSCRIPTION AGENT. Norwest Bank Minnesota, N.A.
RESULTS OF THE RIGHTS OFFERING. If the minimum of 400,000 shares of
Cardia common stock are purchased in the rights offering, Cardia will have
900,000 shares outstanding. If the maximum of 500,000 shares of Cardia common
stock are purchased, Cardia will have 1,000,000 shares outstanding. Joseph A.
Marino will beneficially own a minimum of 255,044 shares following the rights
offering. Mr. Marino's maximum ownership will depend on the number of shares
purchased by others in the rights offering and the resulting obligation of Mr.
Marino to purchase shares pursuant to his standby subscription guaranty.
FEDERAL INCOME TAX CONSEQUENCES OF RIGHTS OFFERING. Holders of Cardia
common stock will not recognize taxable income for federal income tax purposes
in connection with the receipt of the rights. See "Material United States
Federal Tax Considerations - Federal Income Taxation of the Rights Offering."
BACKGROUND AND VALUATION OF THE DISTRIBUTION
ABI's Board of Directors has determined that the distribution will
allow a separate company to raise its own capital on the merits of the closure
device business and to focus its efforts and resources on the development of
that business. The Board also determined that the distribution will allow ABI to
concentrate its resources on its cardiac output monitoring system. An
independent committee of the Board was appointed to determine all issues related
to the distribution and rights offering. The independent committee concluded
that the distribution was fair and reasonable and
3
in the best interests of ABI and its shareholders. The independent committee
also concluded that providing the opportunity for Joseph A. Marino, the Chief
Executive Officer of ABI and Cardia, to acquire 125,000 shares of Cardia common
stock for $125,000 was fair and reasonable and in the best interest of the
shareholders of both ABI and Cardia. See "Certain Transactions - Background and
Valuation of the Distribution."
USE OF PROCEEDS
Cardia will not receive any proceeds from the distribution. The net
proceeds to be received by Cardia from the rights offering depends on the number
of rights exercised and the number of shares purchased. If all rights are
exercised, Cardia expects the proceeds available to it from the rights offering
will be approximately $500,000. The aggregate proceeds from Mr. Marino's
investment and the rights offering will be used to fund ongoing research and
development and for general corporate purposes. Pending their use, proceeds will
be invested in short-term high quality commercial paper.
Mr. Marino has advised Cardia that he will exercise rights to purchase
an aggregate of 127,522 shares of Cardia common stock and has guaranteed to
Cardia that he will fully exercise his standby subscription guaranty to the
extent needed to raise at least $400,000 in the rights offering. Cardia does not
have a written commitment from any other person to purchase any shares pursuant
to the rights offering. Accordingly, no assurances can be given as to the amount
of gross proceeds that Cardia will realize from the rights offering in excess of
the amounts which will be received from Mr. Marino. See "Risk Factors-
Commitments to Purchase and -Use of Proceeds."
4
RISK FACTORS
INVESTING IN CARDIA'S COMMON STOCK IS RISKY. YOU SHOULD BE ABLE TO BEAR
A COMPLETE LOSS OF YOUR INVESTMENT. IN ADDITION TO THE OTHER INFORMATION IN THIS
PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER, AMONG OTHER THINGS, THE FOLLOWING
RISK FACTORS IN DECIDING WHETHER TO EXERCISE THE RIGHTS AND INVEST IN CARDIA'S
COMMON STOCK.
WE ARE A DEVELOPMENT STAGE COMPANY; OUR PRODUCTS ARE IN DEVELOPMENT
Cardia is a medical device company in the development stage. This is
particularly significant because the medical device industry is a market in
which there is an increasing number of companies, intense competition, and a
high failure rate. We have no significant operating history which you may use to
evaluate our business and prospects. Our prospects must be considered in light
of the risks, difficulties and uncertainties frequently encountered by medical
device companies in an early stage of development. Therefore, there can be no
assurance that we will be able to complete our products under development, that
those products will be approved for marketing, that those products will be
accepted in the marketplace, or that those products can be sold at a profit.
Consequently, an investment in our common stock is highly speculative. We do not
guaranty any return on an investment in our common stock.
THERE IS NO ESTABLISHED MARKET FOR OUR PRODUCTS
The closure devices Cardia is currently developing are completely new methods of
treating cardiac defects. Open heart surgery has been the standard treatment for
these defects for many years. We cannot assure that we will be able to establish
a market for our closure devices under development or that the market will be
significant. If we are not able to establish a significant market, we may not
become profitable.
WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION
A significant factor in developing and marketing our proposed products, and in
our ongoing manufacturing and research and development activities, is
governmental regulation in the United States and other countries. We cannot
guaranty that we will be able to comply with applicable governmental regulations
on a timely basis, or at all. See "Business - Government Regulation."
WE ARE SUBJECT TO EXTENSIVE REGULATION BY THE UNITED STATES FOOD AND DRUG
ADMINISTRATION
In the United States, our closure devices are considered to be medical devices,
and they require clearance or approval by the United States Food and Drug
Administration, or FDA, before commercial sales can be made in the United
States. The FDA also imposes post-marketing controls on us and our products. If
we fail to meet these extensive FDA requirements, we and our employees could be
exposed to injunctions, fines, recalls or seizures of products, total or partial
suspension of production, distribution, sales and marketing, suspension or
withdrawal of existing product approvals or clearances, refusals to approve or
clear new applications or notices, and criminal prosecution. Failure to meet FDA
requirements could also cause us to experience reduced revenues and possible
losses. See "Business-Government Regulation."
WE ARE SUBJECT TO EXPORT AND IMPORT REGULATIONS
If we sell our medical devices outside the United States or Europe, we will be
subject to United States export requirements and foreign regulatory
requirements. Each country, other than members of the European Union, has
different legal restrictions on the sale of imported medical devices. These
restrictions may expose us to requirements and time frames that are very
different from those applicable in the United States and Europe. We cannot
guaranty that we will be able to obtain regulatory approvals or clearances for
the sale of our products
5
under development in foreign countries. See "Business-Government Regulation."
WE HAVE A HISTORY OF OPERATING LOSSES
Our business incurred a net operating loss of $457,866 in fiscal year 1997.
Through September 30, 1998 we have incurred a net loss of approximately
$614,367. As of September 30, 1998, our cumulative losses since inception are
$1,072,233. Our losses have resulted principally from expenses incurred in
research and development and general, selling and administrative expenses. These
expenses have exceeded our revenues. Because these losses were incurred prior to
the time Cardia was incorporated, they are not reflected on our balance sheet.
OUR FUTURE PROFITABILITY IS UNCERTAIN
We have generated minimal revenues from the sale of our products under
development and we can not guaranty that we will be able to generate significant
revenues in the future. We expect our operating losses to continue for the near
future as our research and development, sales and marketing activities, and
operations continue. Our ability to achieve profitability depends upon our
ability to obtain necessary government approvals, develop our sales and
marketing capacity, and successfully market and sell our products, none of which
can be assured. It is uncertain when we will become profitable. See
"Management's Plan of Operation."
WE WILL NEED ADDITIONAL CAPITAL
Assuming we do not sell sufficient quantities of our closure devices, we will
need to raise additional funds within approximately the next six to eight
months. Adequate funds may not be available when needed or on terms attractive
to us. If funding is not available when needed or on attractive terms, we may
have to substantially alter our planned operations. See "Managements Plan of
Operation."
WE FACE INTENSE COMPETITION
Research in the field of cardiac surgical devices is intense and highly
competitive. Research in this area is characterized by rapid technological
change. If we do not develop products, obtain regulatory and other approvals,
and launch such products before our competitors, our potential revenues and
earnings will be reduced or eliminated. In addition, any products we are
developing could be made obsolete by less expensive or more effective products
or methods which may be developed by others. We expect competition to intensify
in our industry as technical advances are made and become more widely known.
INSURANCE REIMBURSEMENT FOR OUR PRODUCTS IS UNCERTAIN
Our ability to successfully commercialize our products under development depends
in part on obtaining adequate reimbursement for such products from government
and private health care insurers (including health maintenance organizations and
other third-party payors). Physicians' decisions to recommend products such as
ours are likely to be heavily influenced by the scope and extent of
reimbursement for such products by third-party payors. Government and private
third-party payors are increasingly attempting to contain health care costs by
limiting both the extent of coverage and the reimbursement rate for new
treatment products. In particular, services which are determined to be
investigational in nature or which are not considered "reasonable and necessary"
for treatment may be denied reimbursement coverage. If adequate reimbursement
coverage is not available from insurers or third-party payors, it is uncertain
whether individuals will elect to directly pay for our products under
6
development. If insurers or third-party payors and individuals are unwilling to
pay for our products under development, then our potential revenue and earnings
will be significantly decreased or eliminated.
OUR ABILITY TO PROTECT PROPRIETARY TECHNOLOGY IS UNCERTAIN
Our success will partly depend on our ability to obtain patent protection for
our products in the United States and in other countries. In addition, our
success will also depend on our ability to preserve our trade secrets and to
operate without infringing the proprietary rights of third parties. There can be
no assurance that our patent applications will ever be issued as patents or that
the claims of any issued patents will afford meaningful protection for our
technology or products under development. Furthermore, others may develop
similar products which avoid infringing upon, or conflicting with, our patents
or patent applications. In addition, there can be no assurance that any patents
issued to us will not be challenged and subsequently narrowed, invalidated or
circumvented.
We also rely on unpatented proprietary technologies. We rely on confidentiality
agreements with our employees and consultants to protect such proprietary
technologies. There can be no assurance that we can adequately protect our
rights to such unpatented proprietary technologies, that others will not
independently develop substantially equivalent proprietary information or
techniques, or otherwise gain access to our proprietary technologies or disclose
such technologies. See "Business - Patents, Trademarks and Proprietary Rights."
OUR PATENTS MAY CONFLICT WITH PATENTS GRANTED TO OTHER PARTIES
Our products under development may also conflict with patents which have been or
may be granted to others. As the medical device industry expands and more
patents are filed and issued, the risk increases that our products under
development may give rise to a declaration of interference by the Patent and
Trademark Office, or to claims of patented infringement by other companies,
institutions, or individuals. Such entities or persons could bring legal
proceedings against us seeking damages or seeking to enjoin us from testing,
manufacturing or marketing our products under development. Patent litigation is
costly, and even if we prevail, the cost of such litigation could have an
adverse effect on us. If the other parties in any such actions are successful,
in addition to any liability for damages, we could be required to cease the
infringing activity or obtain a license. Such a license may not be available to
us on acceptable terms, if at all. Failure by us to obtain a license to any
technology that we may require to commercialize our products under development
could have an adverse effect on our business, financial condition, potential
revenues and earnings. See "Business - Patents, Trademarks and Proprietary
Rights."
TECHNOLOGICAL CHANGES MAY RESULT IN OBSOLESCENCE OF OUR PRODUCTS
Market acceptance and sales of our products under development may also be
adversely affected by technological change. It is uncertain whether our
competitors will succeed in developing products that are less expensive or more
effective than our products under development. Further, it is uncertain whether
such developments may render our technology or products under development less
competitive or obsolete.
ADOPTION OF OUR PRODUCTS IS UNCERTAIN
Our products under development are a new generation of small implantable devices
which are delivered through a catheter. These devices are intended to be
7
an alternative to open heart surgery for the closure of congenital and acquired
heart anomalies. Because closure devices represent a new technology that has not
been widely tested, there can be no assurance that our products under
development will gain significant adoption, even if they are safe and effective.
If significant adoption does not occur, there could be a material adverse effect
on our business, financial condition, and potential revenues and earnings.
WE HAVE LIMITED MARKETING AND SALES EXPERIENCE
We currently have a very limited sales and marketing organization. We are in the
process of developing additional sales and marketing resources. We can not
guaranty, however, that we will be able to build a direct sales force or
marketing organization, that, if established, such organization will be cost
effective, or that our sales and marketing efforts will be successful. We also
can not guaranty that we will be able to enter into agreements with distributors
or collaborative arrangements on a timely basis or at all. We also can not
guaranty that distributors or collaborators will devote adequate resources to
selling our products under development. If we fail to build an effective sales
and marketing organization or to establish effective distribution or
collaborative relationships, we will experience a material adverse effect on our
business, financial condition, and potential revenues and earnings.
WE HAVE LIMITED MANUFACTURING EXPERIENCE
We must manufacture our products under development in accordance with regulatory
requirements, in commercial quantities, at appropriate quality levels and at
acceptable costs if we are to be successful. We have not yet been required to
produce our closure devices in large quantities at competitive costs. There can
be no assurance that we will be able to do so. If we receive governmental
approval to widely market our closure devices, there can be no assurance that we
will be successful in making the transition to commercial production of these
products.
WE HAVE SIGNIFICANT PRODUCT LIABILITY EXPOSURE
Our business exposes us to significant potential liability risks inherent in the
use of implantable medical devices. It is uncertain whether liability claims
will be asserted against us. We have product liability insurance which we
believe provides coverage for the application and use of our products under
development. It is uncertain whether we will be able to maintain such insurance
on acceptable terms. Any insurance obtained may not provide adequate coverage
against potential liabilities. A liability claim, even one without merit, could
result in significant legal defense costs which would increase our expenses,
lower our potential earnings and even result in losses.
WE DEPEND ON KEY PERSONNEL
Because of the specialized scientific nature of our business, we are highly
dependent upon our ability to attract and retain qualified management,
scientific and technical personnel. We will also depend on our ability to hire
qualified marketing and sales personnel. Competition for scientific, marketing
and sales personnel is intense. Loss of the services of Mr. Marino could
adversely affect the operation of our Company and our research and development
programs, and could impede the achievement of our business objectives. We do not
currently maintain key man life insurance on any of our personnel. There can be
no assurance that we will be successful in hiring or retaining qualified
personnel. The loss of key personnel, or our inability to hire and retain
qualified personnel,
8
could have a material adverse effect on our business, financial condition, and
potential revenues and earnings.
SOME OF OUR SENIOR MANAGEMENT WILL NOT BE DEVOTING ALL OF THEIR TIME TO OUR
BUSINESS
Joseph A. Marino, our Chief Executive Officer, and Peter Buonomo, our Vice
President, will be splitting their time between ABI and Cardia for an indefinite
period of time following the distribution and the rights offering. This time
sharing arrangement means that our senior management will not be devoting their
entire efforts to our business for an undetermined period, which could result in
conflicts of interest and could adversely affect the operation of Cardia. See
"Business-Time Sharing of Executives.
WE ARE SUBJECT TO CONTROL BY EXISTING SHAREHOLDERS
Following completion of the distribution and the rights offering, assuming that
each director and executive officer of ABI exercises the rights issued to him,
but assuming no shares are purchased pursuant to Mr. Marino's standby
subscription guaranty, the directors and executive officers of ABI will
beneficially own approximately 36% of our outstanding common stock. Accordingly,
these shareholders, individually and as a group, may be able to influence the
outcome of shareholder votes, including votes concerning the election of
directors, the adoption or amendment of provisions in our Articles of
Incorporation or By-Laws, and the approval of certain mergers and other
significant corporate transactions, including a sale of substantially all of our
assets. This control could have the effect of delaying, deferring or preventing
a change in control.
PURCHASERS OF OUR COMMON STOCK WILL EXPERIENCE DILUTION; WE HAVE NEVER PAID
DIVIDENDS
Purchasers in the rights offering will experience immediate and substantial
dilution in the net tangible book value of our common stock from the
subscription price. Additional dilution is likely to occur upon the exercise of
any options or warrants that we have granted or will grant in the future. We
have never paid dividends and do not intend to pay any dividends in the
foreseeable future.
THERE IS NO CURRENT PUBLIC MARKET FOR OUR COMMON STOCK
Prior to the distribution, there has been no public market for our common stock.
There can be no assurance that an active trading market for our common stock
will develop or be sustained after the distribution or the rights offering.
THE OFFERING PRICE OF OUR COMMON STOCK WAS DETERMINED ARBITRARILY
The subscription price of Cardia's common stock has been determined solely by
ABI. The subscription price bears no relationship to earnings, asset values,
book value or any other recognized criteria of value. The market prices for
securities of emerging medical device companies have been highly volatile.
Announcements may have a significant impact on the market price of our common
stock. Such announcements may include medical discoveries, technological
innovations or new commercial products by us or our competitors, developments
concerning proprietary rights, including patents and litigation matters,
regulatory developments in both the United States and foreign countries, public
concern as to the safety of new technologies, general market conditions, as well
as quarterly fluctuations in our revenues and financial results.
IT IS POSSIBLE THAT OUR COMMON STOCK PRICE WILL BE VOLATILE
The stock market has, from time to time, experienced extreme price and volume
fluctuations which have particularly affected the market prices for emerging
medical device companies and which have often been unrelated to the operating
performance of such companies. These broad market fluctuations may adversely
affect the market price of our common stock. In the past, following periods of
9
volatility in the market price of a company's stock, securities class action
litigation has occurred against the issuing company. Such litigation could
result in substantial costs and a diversion of management's attention and
resources, which could have a material adverse affect on our potential revenues
and earnings. Any adverse determination in such litigation could also subject us
to significant liabilities.
WE ARE SUBJECT TO ANTI-TAKEOVER LAWS; CERTAIN PROVISIONS OF OUR ARTICLES MAY
HAVE AN ANTI-TAKEOVER EFFECT
The effect of certain provisions of the Minnesota Business Corporation Act and
the ability of our Board of Directors to issue preferred stock without
shareholder approval may have the effect of delaying or preventing a change in
control or merger of Cardia which could operate to the detriment of our
shareholders.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks
and uncertainties. When used in this prospectus, the words or phrases
"believes," "anticipates," "expects," "intends," estimates" or similar
expressions are intended to identify forward-looking statements, but are not the
exclusive means of identifying such statements. These forward looking statements
involve risks and uncertainties that may cause our actual results to differ
materially from those expressed or implied by the forward-looking statements.
Important factors that could cause our actual results to differ materially from
projections include, but are not limited to, those discussed in "Risk Factors,"
"Management's Plan of Operation" and "Business," as well as those discussed
elsewhere in this prospectus. Given these uncertainties, you should not place
undue reliance on the forward-looking statements. We do not intend to update any
forward-looking statements.
10
USE OF PROCEEDS OF THE RIGHTS OFFERING
The net proceeds to be received by Cardia from the rights offering
depend on the number of rights exercised. Exclusive of the $125,000 invested in
Cardia by Mr. Marino, the net proceeds to Cardia will be $500,000 if the maximum
number of rights are exercised and $400,000 if the minimum number of rights are
exercised. The aggregate proceeds from the rights offering will, in the
following priority, be used to fund research and development activities, for
selling, general and administrative expenses, capital equipment, and working
capital needs. The balance of any proceeds will be invested in short-term high
quality commercial paper until used for general corporate and working capital
purposes.
The following table sets forth the estimated use of proceeds if the
minimum and maximum number of shares are sold in the rights offering:
Minimum(1) Maximum
------- -------
Research and development $150,000 $200,000
Selling, general and administrative 150,000 150,000
expenses
Capital equipment 30,000 60,000
Working capital 70,000 90,000
-------- --------
TOTAL $400,000 $500,000
-------- --------
- ----------------
(1) Joseph A. Marino has provided a standby subscription guaranty to Cardia
which guarantees that the minimum number of rights will be exercised.
DIVIDEND POLICY
Cardia has never declared or paid a cash dividend on its common stock.
Cardia currently intends to retain any earnings for use in the operation and
expansion of its business and, therefore, does not anticipate paying any cash
dividends in the foreseeable future.
11
CAPITALIZATION
At September 30, 1998, Cardia had a pro forma net tangible book value
of $182,903 (including Mr. Marino's investment of $125,000), or $0.37 per share
of common stock outstanding. The following table sets forth the pro forma
capitalization of Cardia as of September 30, 1998 and as adjusted to reflect the
sale by Cardia of the minimum 400,000 shares and the maximum 500,000 shares of
its common stock pursuant to the Rights offering at a subscription price of
$1.00 per share, and the anticipated use of the net proceeds therefrom. See "Use
of Proceeds."
September 30, 1998
---------------------------------------------
As Adjusted As Adjusted
Pro forma(1) (minimum)(2) (maximum)(3)
------------ ------------ ------------
Shareholders' Equity:
Common stock, $0.01 par value;
10,000,000 shares authorized;
500,000 shares issued and outstanding;
900,000 shares and 1,000,000 shares
as adjusted ................................. $ 5,000 $ 9,000 $ 10,000
Additional paid-in capital................... 265,403 661,403 760,403
Accumulated deficit.......................... -- -- --
-------- -------- --------
Total shareholders' equity 270,403 670,403 770,403
-------- -------- --------
Total capitalization $270,403 $670,403 $770,403
======== ======== ========
- ----------------
(1) Includes the investment of $125,000 by Mr. Marino, which will occur
immediately prior to the distribution.
(2) Assumes the issuance of the minimum of 400,000 shares of Cardia common
stock pursuant to the rights offering at a price of $1.00 per share.
(3) Assumes the issuance of the maximum of 500,000 shares of Cardia common
stock pursuant to the rights offering at a price of $1.00 per share.
12
DILUTION
As of September 30, 1998, the pro forma net tangible book value of
Cardia (total assets, excluding intangible assets, less total liabilities), was
$182,903 or $0.37 per share of Cardia common stock outstanding following the
distribution, without giving effect to the sale of shares of Cardia common stock
offered in the rights offering, but giving effect to Mr. Marino's investment of
$125,000.
Assuming the sale of the maximum 500,000 shares of Cardia common stock
in the rights offering, the pro forma net tangible book value of the Cardia
common stock held by Cardia shareholders immediately after the rights offering
would be increased by $0.31 per share without any additional investment on their
part (excluding the exercise of rights), and the persons exercising the rights,
who would then own an additional 500,000 shares of Cardia common stock, would
experience an immediate dilution of $0.32 per share. Assuming the sale of the
minimum 400,000 shares of Cardia common stock, the pro forma net tangible book
value of the Cardia common stock held by Cardia shareholders immediately after
the rights offering would be increased by $0.28 per share without any additional
investment on their part (excluding the exercise of rights), and the persons
exercising the rights, who would then own an additional 400,000 shares of Cardia
common stock, would experience an immediate dilution of $0.35 per share.
The following table illustrates the changes in pro forma net tangible
book value of Cardia common stock outstanding immediately following the
distribution and the dilution that would be experienced by persons exercising
the rights, without giving effect to the results of operations after September
30, 1998:
minimum maximum
------- -------
Price paid per share in the rights offering $1.00 $1.00
Net tangible book value per share before offering $0.37 $0.37
Increase in net tangible book value per share resulting
from offering $0.28 $0.31
Pro forma net tangible book value per share after offering $0.65 $0.68
Dilution per share to investors in this offering $0.35 $0.32
The following table summarizes, as of September 30, 1998, the
differences between the shareholders of Cardia immediately following the
distribution and investors exercising the rights with respect to Cardia common
stock ownership, the total consideration paid and the average consideration paid
per share:
Shares Purchased Total Consideration Average
------------------ -------------------- Consideration
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
Minimum
- -------
Current Shareholders 500,000 55.6% $ 182,903 31.4% $0.37
New Investors 400,000 44.4% 400,000 68.6% $1.00
--------- ------ ---------- ------
Total 900,000 100.0% $ 582.903 100.0%
========= ====== ========== ======
Maximum
- -------
Current Shareholders 500,000 50.0% $ 182.903 26.8% $0.37
New Investors 500,000 50.0% 500,000 73.2% $1.00
--------- ------ ---------- ------
Total 1,000,000 100.0% 682,903 100.0%
========= ====== ========== ======
13
MANAGEMENT'S PLAN OF OPERATION
Assuming the maximum number of rights are exercised in the rights
offering, Cardia's initial liquidity will consist of cash of approximately
$625,000, including Mr. Marino's initial investment of $125,000. Management
currently expects this cash to be used as set forth above under the caption "Use
of Proceeds." Assuming Cardia receives no revenues from the sale of its closure
devices, the available liquidity will fund Cardia's operations for an estimated
period of six to eight months, at which time Cardia intends to raise additional
capital through the issuance of equity or debt securities or through bank debt,
or a combination of these means. There can be no assurance, however, that
additional capital will be available to Cardia or available on terms acceptable
to Cardia.
ABI acquired certain developed and certain in-process technology
relating to transcatheter closure devices in November of 1997. Since the
acquisition, ABI has continued to conduct research and development on closure
devices, based on the in-process technology. Cardia plans to continue research
and development, as well as clinical trials for its closure devices. Planned
research and development activities will include further improvements of the
acquired technology, continued testing and improvement of the closure device
technology Cardia has developed, and investigation of modified devices for new
applications. Cardia will perform animal pilot trials on those devices which
appear to be the most promising. Cardia expects to spend approximately $100,000
to $200,000 to complete development of its existing closure devices during 1999.
Cardia currently expects that it will be in a position to commence commercial
sales of its closure devices in Europe following receipt of CE Mark
certification, which is anticipated to be received during the second half of
1999. Although Cardia believes its in-process technology has substantial
advantages over the technology used in competitive closure devices, there can be
no assurance that Cardia will successfully complete development of Cardia's
technology.
Cardia does not expect to make material capital investments in plant or
equipment during 1999. Cardia expects to add between four and six full-time
employees during 1999. Those additional personnel will not be added, however,
unless business growth justifies additional employees. Cardia expects to spend
between $600,000 and $700,000 on selling, marketing and general administrative
salaries and overhead during 1999. The majority of these expenditures will
relate to Cardia's sales and marketing activities. These expenditures are not
currently fixed costs and the amount spent during 1999 will depend largely on
the performance and growth of Cardia's business during the next twelve months.
Accordingly, Cardia will be able to adjust these expenses based on revenues and
cash flows.
14
BUSINESS
GENERAL
Cardia, Inc. was formed in October of 1998 as a subsidiary of Applied
Biometrics, Inc. ("ABI"). Cardia intends to develop, manufacture and market
transcatheter closure device products which are based, in part, on certain
intellectual property rights ABI acquired from Bernhard Schneidt and Dr. Rainer
Schrader in November of 1997. Transcatheter closure devices are a new generation
of small, implantable devices which are delivered through a catheter inserted
into a major blood vessel and designed to permanently repair certain cardiac
defects in children and adults. The implantation of these closure devices is
intended to reduce the need for open heart surgery which has traditionally been
required for the repair of certain cardiac defects.
PRODUCTS
Cardia is developing a product line of transcatheter closure devices
which it believes offer certain advantages over transcatheter close devices
offered by its competitors. Transcatheter closure devices are an entirely new
family of small, implantable devices which are delivered through a catheter
inserted into a major blood vessel to permanently repair certain cardiac defects
in children and adults. The procedure is performed in a cardiac cathlab and is
intended to reduce the need for open heart surgery, which is currently the
accepted method of repairing these defects. Cardia is in the initial stages of
developing these closure devices. Cardia hopes to develop a product family that
will be capable of providing an effective, nonsurgical method of correcting a
variety of heart defects. Its initial focus will be on closure devices for the
repair of patent ductus arteriosis, or PDA, and patent foramen ovale, or PFO.
Cardia may also pursue closure devices for the repair of atrial septal defects
and ventricular septal defects in the future. One product variant has already
been sold in Germany as an experimental device for PDA closures. That product
has been implanted successfully in over 150 human cases on an experimental
basis. Cardia expects to complete enhancements to its PDA device in the near
future and intends to begin marketing and distributing the product in Europe
after certain regulatory requirements have been met.
Cardia is also in the process of developing a closure device for the
PFO market. Since the purchase of its closure device technology, Cardia has
effected minimal sales of its PDA device, and Cardia has turned its focus to the
PFO device. During 1998, that product has been implanted successfully in over 30
human cases on an experimental basis. Cardia is currently collecting data from
follow-up examinations of patients who have received Cardia's closure devices.
To date, follow-up data is extremely limited. Cardia is aware of fractures or
bends that have occurred in certain metal components of its own and closure
device products of other manufacturers. Such fractures and bends, however, are
not generally regarded as having significant potential for clinical risks for
patients or as having the potential to cause regulatory approval delays. Cardia
intends to develop its products in a manner designed to avoid such problems in
the future.
CARDIA'S STRATEGY
Cardia is currently developing two transcatheter closure device
products, one for the PDA market and one for the PFO market. Cardia's PDA
closure device is currently being marketed on an experimental basis in Germany
and Switzerland. Cardia is currently seeking the necessary regulatory approval
to market this device on a broader basis in additional European Union countries.
Following regulatory approval in Europe, if obtained, Cardia intends to commence
the process for pursuing FDA approval in the United States.
Cardia estimates that the market for PFO closure devices is
significantly larger than the market for PDA closure devices. Cardia, therefore,
intends to focus most of its resources during the next twelve months on
continuing to develop, test and pursue regulatory approval to market and sell
its PFO line of closure devices in Europe and the United States.
15
Initial development and testing efforts are focused on the European
market, where Cardia has received ISO 9001 certification and has commenced the
process for obtaining CE Mark certifications for its PDA and PFO products. These
certifications are required for the general sale of medical devices in Europe.
Cardia anticipates receiving the necessary certifications during the second half
of 1999. Cardia is currently selling its PDA and PFO devices on a very limited
basis in Germany and Switzerland in reliance on an experimental device process
that is restrictive, costly and time consuming. If it obtains the CE Mark
certifications, Cardia expects to expand its marketing and sales endeavors for
its closure devices to other European countries. These certifications would
allow Cardia to expand its marketing efforts in Europe and would reduce the cost
and complexity of the marketing and sales process. There can be no assurance
that Cardia will be able to obtain the necessary CE Mark certifications.
Cardia has not determined when it will commence the process to pursue
FDA approval for its products under development. It does not currently intend,
however, to pursue FDA approval until it has completed its clinical testing and
certification processes in Europe. There can be no assurance that Cardia will be
able to obtain FDA approval for any of its products under development.
MARKETING, SALES AND DISTRIBUTION
Cardia believes its closure devices under development will have a broad
range of applications for the closure of congenital and acquired anomalous
cardiac communications. Cardia's PDA closure device has the potential to reduce
the need for open heart surgery as the method of closure in many of the nearly
14,000 cases annually in the United States and Europe. Cardia also believes that
the PFO defect, which may be a cause of paradoxical or otherwise inexplicable
strokes, represents an even larger market for the prevention of recurring
embolic events. Cardia estimates that, as a result of the recent development of
an accurate test for detecting PFO defects in victims of paradoxical strokes,
there may be more than 250,000 closure cases annually in the United States and
Europe. There is, however, no current consensus on the size of the PFO closure
market.
Cardia's initial full-scale marketing and sales efforts will commence
in Europe immediately following Cardia's receipt of CE Mark certifications for
its PFO and PDA closure devices. Sales and distribution efforts in European
countries will be conducted through either a direct sales force or specialized
distributors, depending on the country. Cardia expects to use a direct sales
force in the United States when sales are permitted.
Cardia intends to create a market for its PFO closure device by
focusing on neurologists and cardiologists. Neurologists are important to the
process because they are often the medical professionals who first see victims
of paradoxical strokes. If a neurologist determines, via testing, that a PFO is
the cause of a paradoxical stroke and should be closed, the patient is referred
to a cardiologist. Cardia's PFO closure device is implanted by a cardiologist in
a cathlab, using standard catheterization procedures. The implantation procedure
is minimally invasive, and the patient can usually be sent home within
twenty-four hours. Cardia's goal is to demonstrate to neurologists and
cardiologists that its closure device products under development are a safe,
effective, minimally invasive alternative to open heart surgery.
RESEARCH AND DEVELOPMENT
Cardia's ongoing plans for research and development for its PFO and PDA
closure devices include further improvements of the acquired technology and
investigation into modified devices for new applications. Cardia will perform
animal pilot trials on those devices which appear to be the most promising.
Cardia expects to spend approximately $100,000 to $200,000 to complete
development of its existing closing device devices during 1999.
COMPETITION
Cardia's competitors in the cardiac defect closure field are believed
to be small to medium sized companies, the most prominent of which are Nitinol
Medical Technologies, Inc. located in Boston, Massachusetts, and AGA
16
Medical Corporation and Microvena, Corp., both located in Minneapolis,
Minnesota. Cardia believes that one or more of these companies is in clinical
trials with closure devices that are designed for PDA and PFO closure
applications. The competitors of Cardia in the cardiac closure field may have
greater resources and be able to penetrate the transcatheter closure device
market in Europe and the United States sooner than Cardia. Although Cardia
believes its closure devices are based on sound and competitive technology,
there can be no assurance that Cardia's present products will be able to compete
successfully with existing or future competitive products or that Cardia will be
able to develop or acquire additional products or otherwise effectively respond
to new products or technological advances developed by competitors. Any failure
by Cardia to effectively penetrate markets sooner than its competitors or to
successfully compete with existing or future products or technologies could
significantly reduce or eliminate Cardia's anticipated revenues and earnings.
GOVERNMENT REGULATION
Government regulation in the United States and other countries is a
significant factor in the development and marketing of Cardia's products and in
Cardia's ongoing manufacturing and research and development activities. Cardia
and its products are regulated by the United States Food and Drug Administration
, the FDA, under a number of statutes, including the Federal Food, Drug and
Cosmetic Act.
Under the Federal Food, Drug and Cosmetic Act, medical devices are
categorized into one of three classes, Class I, II or III, on the basis of the
controls deemed necessary to reasonably ensure their safety and effectiveness.
Class I devices are subject to the least extensive controls, as the safety and
effectiveness reasonably can be assured through general controls such as
labeling, premarket notification and adherence to the FDA's Good Manufacturing
Practices. For Class II devices, safety and effectiveness can be assured through
the use of special controls, such as performance standards, post market
surveillance, patient registries and FDA guidelines. Class III devices, which
are life-sustaining or life-supporting implantable devices, or new devices which
have been found not to be substantially equivalent to legally marketed devices,
require the highest level of control, generally requiring premarket approval by
the FDA to ensure their safety and effectiveness. All companies subject to FDA
regulation must comply with a variety of rules, including the FDA's Good
Manufacturing Practices regulations, and are subject to periodic inspections by
the FDA and other applicable agencies. If the FDA believes that its regulations
have not been fulfilled, it may implement extensive enforcement powers which
were strengthened by the enactment of the Safe Medical Devices Act of 1990. The
FDA's powers include, but are not limited to, the ability to ban products from
the market, prohibit the operation of manufacturing facilities and effect
recalls of products from customer locations.
If a manufacturer or distributor of medical devices can establish that
a proposed device is "substantially equivalent" to a legally marketed Class I or
Class II medical device or to a Class III medical device for which the FDA has
not required a Premarket Approval application, the manufacturer or distributor
may seek FDA marketing clearance for the device by filing a 510(k) notification.
Following submission of the 510(k) notification, the manufacturer or distributor
may not place the device into commercial distribution in the United States until
an order has been issued by the FDA. The FDA's target for issuing such orders is
within 90 days of submission, but the process can take significantly longer. The
order may declare the FDA's determination that the device is "substantially
equivalent" to another legally marketed device and allow the proposed device to
be marketed in the United States. The FDA may, however, determine that the
proposed device is not substantially equivalent or may require further
information, such as additional test data, before making a determination
regarding substantial equivalence. Cardia, however, does not believe that its
closure device products under development are substantially equivalent to
another legally marketed device.
If a manufacturer or distributor of medical devices cannot establish
that a proposed device is substantially equivalent to another device via the
510(k) process, the manufacturer or distributor must seek Premarket Approval of
the proposed device. A Premarket Approval application must be submitted,
supported by extensive data, including preclinical and clinical trial and
follow-up data, to prove the safety and efficacy of the device. Generally, a
company is required to obtain an Investigative Device Exemption before it
commences clinical testing in the United States in
17
support of a Premarket Approval application. The FDA monitors and oversees the
use and distribution of such "research use only" and "investigational use only"
products. Although by statute, the FDA has 180 days to review a Premarket
Approval application once it has been accepted for filing, during which time an
advisory committee may also evaluate the application and provide recommendations
to the FDA, Premarket Approval application reviews often extend over a
significantly protracted time period, usually 12 to 24 months or longer from
filing. Accordingly, there can be no assurance the FDA review of any Premarket
Approval application submitted by Cardia will not encounter prolonged delays or
that the data collected and submitted by Cardia in its Premarket Approval
application will support approval.
Cardia intends to obtain Class III market clearance for its closure
devices through the FDA's Investigative Device Exemption/Premarket Approval
application process. It has not yet determined, however, when it intends to file
the first Investigative Device Exemption application for US clinical trials.
Labeling and promotional activities are also subject to scrutiny by the
FDA and, in certain instances, by the Federal Trade Commission. The FDA also
imposes post-marketing controls on Cardia and its products, and registration,
listing, medical device reporting, post-market surveillance, device tracking and
other requirements on medical devices. Failure to meet these pervasive FDA
requirements, or adverse FDA determinations regarding Cardia's clinical and
preclinical trials, could subject Cardia and its employees to injunction,
prosecution, civil fines, seizure or recall of products, prohibition of sales,
or suspension or withdrawal of any previously granted approvals.
The Federal Food, Drug and Cosmetic Act regulates Cardia's quality
control and manufacturing procedures by requiring Cardia and its contract
manufacturers to demonstrate compliance with current Good Manufacturing
Practices as specified in published FDA regulations. The FDA monitors compliance
with Good Manufacturing Practices by requiring manufacturers to register with
the FDA, which subjects them to periodic unannounced FDA inspections of
manufacturing facilities. If violations of applicable regulations are noted
during FDA inspections of Cardia's manufacturing facilities or the facilities of
its contract manufacturers, the continued marketing of Cardia's products may be
adversely affected. Such regulations are subject to change and depend heavily on
administrative interpretations. There can be no assurance that future changes in
regulations or interpretations made by the FDA or other regulatory bodies, with
possible retroactive effect, will not adversely affect Cardia.
Sales of medical devices outside of the United States are subject to
United States export requirements and foreign regulatory requirements. Legal
restrictions on the sale of imported medical devices vary from country to
country. The time required to obtain approval by a foreign country may be longer
or shorter than that required for FDA approval, and the requirements may differ.
For countries in the European Union, CE Mark certification procedures are
available for medical devices, the successful completion of which allows the
certified devices both to be shipped from the United States and to be placed on
the market in all European countries. Medical devices may not be sold in a
general manner in Europe unless they display the CE Mark. There can be no
assurance that Cardia will be able to obtain regulatory approvals or clearances
for its products in foreign countries.
No assurance can be given that the FDA or other regulatory authorities
will give, on a timely basis, if at all, the requisite approvals for medical
products currently under development by Cardia or that may be developed by
Cardia in the future. Even if approvals are received, the process of obtaining
clearance to market medical products is costly and time consuming and can delay
the marketing and sale of Cardia's products. Further, federal, state, foreign
and other regulations regarding the manufacture and sale of medical devices are
subject to change. Cardia cannot predict what impact such changes, if any, might
have on its business, financial condition or results of operations.
18
MANUFACTURING AND OPERATIONS
Cardia manufactures and assembles its closure devices at its facilities
in Burnsville, Minnesota. Certain of the components of Cardia's products are
manufactured by third party vendors. Cardia has received ISO 9001 certification,
which certification shows compliance of Cardia's manufacturing facilities with
European standards for quality assurance and manufacturing process control.
Because Cardia is in the development stage, its business is not
currently dependent on one or a few major customers. It is also not currently
dependent on a limited number of sources or availability of raw materials to
manufacture its products under development.
PATENTS, TRADEMARKS AND PROPRIETARY RIGHTS
There are several patents relating to Cardia's closure devices. A U.S.
patent, two German utility model registrations and a pending European patent
application exist for its PDA closure device. A German utility model application
and a Patent Cooperation Treaty patent application have been filed for Cardia's
PFO closure device. It is the intention of Cardia to file for European and U.S.
patents, based upon the Patent Cooperation Treaty patent application, for its
PFO closure device as well as its other closure devices.
There can be no assurance that patents will issue on products under
development by Cardia or to be developed by Cardia in the future, that the
patents issued to Cardia in the past or in the future will be of material
benefit, or that Cardia will have sufficient resources to enforce its patent
rights. Nor can there be any assurance that Cardia's products do not infringe on
patents, copyrights or other proprietary information known or claimed by others,
or that others will not successfully utilize part of or all of Cardia's
technologies without compensation to Cardia. If Cardia is found to have
infringed on the rights of a third party, Cardia may be unable to market its
products without a license from such third party. There can be no assurance that
Cardia would be able to obtain such a license on satisfactory terms, or at all.
Cardia also relies for protection of trade secrets and proprietary
know-how on its internal security and secrecy measures and on employment and
consulting agreements requiring employees and consultants of Cardia to observe
the confidentiality of company information and to assign to Cardia inventions
developed in the course of work performed for Cardia.
EMPLOYEES
Following the distribution, Cardia will employ two full-time employees
and four part-time employees. The full-time employees will be engaged in sales
and marketing activities. The part-time employees will be engaged in various
activities including research and development, manufacturing and general
administration. Cardia believes that its relations with its employees are good.
None of Cardia's employees is covered by a collective bargaining agreement.
PROPERTY
Cardia subleases approximately 1,200 square feet of office,
manufacturing and warehouse space from ABI at 501 East Highway 13, Suite 108,
Burnsville, Minnesota, a suburb of Minneapolis. Cardia believes that its present
facilities are in good condition and adequate for its current operations.
LEGAL PROCEEDINGS
Cardia is not a party to any litigation and is not aware of any
threatened litigation that would have a material adverse effect on its financial
condition or results of operations.
19
AVAILABLE INFORMATION
Cardia has filed with the Securities and Exchange Commission a
registration statement on Form SB-2 under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to Cardia common stock to be issued in the
distribution and the rights offering. This prospectus does not contain all of
the information set forth in the registration statement and the exhibits
thereto. For further information, reference is made hereby to the registration
statement and the exhibits thereto. Statements contained herein concerning any
documents are not necessarily complete and, in each instance, reference is made
to the copies of such documents filed as exhibits to the registration statement.
Each such statement is qualified in its entirety by such reference. Copies of
these documents may be inspected without charge at the principal office of the
Commission at 450 5th Street NW, Washington, D.C. 20549, and at the regional
offices of the Commission at 7 World Trade Center, Suite 1300, New York, NY
10048, at CitiCorp Center, Suite 1400, 500 West Madison Street, Chicago, IL
60661, and at 5670 Wilshire Blvd., Suite 1100, Los Angeles, CA 90036, and copies
of all or any part thereof may be obtained from the Commission upon payment of
the charges prescribed by the Commission. Copies of such documents may also be
obtained from the Commission's web site ((http://www.sec.gov).
Following the distribution, Cardia will be required to comply with the
reporting requirements of the Securities Exchange Act of 1934, as amended, and
will file annual, quarterly and other reports with the Commission. Cardia will
also be subject to the proxy solicitation requirements of the Exchange Act and,
accordingly, will furnish audited financial statements to its shareholders in
connection with its Annual Meeting of Shareholders.
20
MANAGEMENT
OFFICERS AND DIRECTORS
The directors and officers of Cardia are as follows:
Principal Occupation
Name and Age and Other Directorships
- ------------ -----------------------
Joseph A. Marino Chairman, Chief Executive Officer, Treasurer and
(47) Director of Cardia since November 1998; Chairman of
Applied Biometrics, Inc. since 1994 and Chief
Financial Officer from 1993 to 1996.
Peter Buonomo Vice President of Cardia since November 1998; Vice
(38) President of Sales and Marketing of Applied
Biometrics, Inc. since 1996, Vice President of
Marketing since 1995 and Director of Marketing from
1994 to 1995.
Patrick Delaney Secretary of Cardia since November 1998; Secretary
(56) and Director of Applied Biometrics, Inc. since 1993;
Partner in Lindquist & Vennum P.L.L.P., a Minneapolis
law firm which is counsel to Cardia; practicing
lawyer since 1967; Secretary of MTS Systems
Corporation; Director of CNS, Inc. and Community
First Bankshares, Inc.
Thomas E. Brust Director of Cardia since November 1998; Chairman and
(40) Chief Executive Officer of Micropure Medical, Inc., a
medical device manufacturer, since 1992.
Christopher Turnbull Director of Cardia since January 1, 1999; Director of
(43) St. Paul Medical Inc., a disposable medical device
manufacturer, since 1993; Interim President of Oxboro
Medical International, a medical device manufacturer,
since 1998.
Mr. Marino and Mr. Buonomo will provide services to both Cardia and ABI
for an indefinite period of time following the distribution and the rights
offering. Each of Cardia and ABI will pay salaries to these two officers based
on a percentage of their combined annualized base salaries equal to the
percentage of time each officer devotes to the business of Cardia and ABI,
respectively.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding
compensation to be paid during fiscal year 1999 to Cardia's Chief Executive
Officer. No employee of Cardia will receive salary in excess of $100,000 during
1999:
21
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- -------------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY OPTIONS(1)
- --------------------------- ----------- ---------- -------------------
Joseph A. Marino, Chief Executive Officer 1999 $85,000(2) 75,000
- -----------------------
(1) Number of shares of common stock subject to options granted during the
year indicated.
(2) Mr. Marino's Cardia salary is based on fifty percent of a combined
annualized base salary of $170,000 which will be paid to him for
services rendered to ABI and Cardia during 1999. This salary will be
paid by Cardia. In the event the time devoted by Mr. Marino to Cardia's
business during 1999 is more or less than fifty percent of the total
time devoted to Cardia and ABI together, the salary paid to him by
Cardia will be adjusted accordingly.
DIRECTOR COMPENSATION
Directors are not currently paid fees for attending meetings. All Directors
are reimbursed for their travel expenses incurred in attending board meetings.
STOCK OPTION PLAN
As of November 1, 1998, the Board of Directors and sole shareholder of
Cardia adopted the Cardia, Inc. 1998 Omnibus Stock Incentive Plan to provide for
the granting of stock-based incentives to officers, key employees and directors
of Cardia. The plan permits the granting of incentive stock options meeting the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended,
non-qualified stock options which do not meet the requirements of such Section,
stock appreciation rights, restricted stock grants and deferred stock grants.
Cardia has reserved 200,000 shares of its common stock for issue in connection
with awards granted pursuant to the plan. As of the date of this prospectus,
Cardia has outstanding options to purchase an aggregate of 75,000 shares of its
common stock.
The following table sets forth certain information as to options granted to
the Chief Executive Officer of Cardia as of the date of this prospectus:
OPTION GRANTS
(INDIVIDUAL GRANTS)
NUMBER OF SECURITIES PERCENT OF TOTAL OPTIONS
UNDERLYING OPTIONS GRANTED TO EMPLOYEES EXERCISE OR BASE PRICE
NAME GRANTED IN FISCAL YEAR (DOLLAR/SHARE) EXPIRATION DATE
- ---- -------------------- ------------------------ ---------------------- ---------------
Joseph A. Marino 75,000(1) 100% $1.10 1/1/09
- ------------------
(1) All of Mr. Marino's options are currently exercisable.
22
The following table sets forth certain information as to options held
by the Chief Executive Officer of Cardia as the date of this prospectus:
AGGREGATE OPTION EXERCISES
AND OPTION VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS MONEY OPTIONS
------- -------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
Joseph A. Marino 75,000 0 $ 0 (1) ---
- ----------------------
(1) The value of the exercisable options is equal to the
difference between the subscription price in the rights
offering of $1.00 per share and the option exercise price of
$1.10 per share multiplied by the number of shares subject to
options.
INDEMNIFICATION AND WAIVER OF DIRECTOR LIABILITY
The Minnesota Business Corporation Act provides that officers and
directors of Cardia have the right to indemnification from Cardia for liability
arising out of certain actions. Such indemnification may be available for
liabilities arising in connection with the distribution and the rights offering.
Insofar as indemnification for liabilities arising under the Securities Act or
1933, as amended, may be permitted to directors, officers or persons controlling
Cardia pursuant to such indemnification provisions, Cardia has been advised that
in the opinion of the Commission, such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.
Cardia has adopted in its Articles of Incorporation a provision which
limits personal liability for breach of the fiduciary duty of its directors, to
the extent provided by the Minnesota Business Corporation Act. Such provision
eliminates the personal liability of directors for damages occasioned by breach
of fiduciary duty, except for liability based on the director's duty of loyalty
to Cardia, liability for acts or omissions not in good faith, or which involve
intentional misconduct or a knowing violation of law, liability based on
payments of improper dividends, liability based on violations of state
securities laws, and liability for acts occurring prior to the date such
provision was added.
23
PRINCIPAL SHAREHOLDERS
APPLIED BIOMETRICS, INC.
As of October 15, 1998, ABI had 4,336,117 outstanding shares of common
stock, $.01 par value. The following table sets forth, as of that date, the
number and percentage of outstanding shares of common stock of ABI beneficially
owned by each person who is known to ABI to beneficially own more than five
percent (5%) of the common stock of ABI, by each director of ABI, by each
executive officer of ABI, and by all directors and executive officers of ABI as
a group:
Name and Address of Number of Shares Percent
Beneficial Owner Beneficially Owned(1) of Class
- ------------------ ------------------ --------
David B. Johnson ............................... 402,100(2) 9.4%
c/o Miller, Johnson & Kuehn, Incorporated
5500 Wayzata Boulevard
Suite 800 - Eighth Floor
Minneapolis, MN 55416
Aaron Boxer Revocable Trust .................... 307,000(3) 7.2%
c/o Miller, Johnson & Kuehn, Incorporated
5500 Wayzata Boulevard
Suite 800 - Eighth Floor
Minneapolis, MN 55416
Hayden R. Fleming (8) .......................... 223,240 5.2%
14988 N. 78th Way, Suite 200
Scottsdale, AZ 85260
Joseph A. Marino (5) (6) ....................... 329,166 7.1%
501 East Hwy. 13
Burnsville, MN 55337
Demetre Nicoloff, M.D., Ph.D (5) (7) ........... 80,900 1.8%
Patrick Delaney (5) ............................ 48,400 1.1%
Jeffrey W. Green (5) (8) ....................... 43,400 1.0%
All directors and executive officers
as a group (6 persons) (5) ..................... 586,866 12.1%
- ---------------------
(1) Unless otherwise indicated, each person has sole voting and
dispositivepower over such shares.
(2) Based on a Schedule 13G dated February 12, 1998 and filed with the
Securities and Exchange Commission. Of the 402,100 shares reported, Mr.
Johnson has sole voting and dispositive power with respect to 107,450
shares and shared voting and dispositive power with respect to 294,650
shares.
(3) Based on a Schedule 13G dated February 12, 1998 and filed with the
Securities and Exchange Commission.
(4) Based on a Schedule 13D dated December 4, 1997 and filed with the
Securities and Exchange Commission. Of the 223,240 shares reported, Mr.
Fleming has sole voting and dispositive power with respect to 201,240
and shared voting and dispositive power with respect to 22,000 shares.
(5) Includes the following number of shares which could be purchased under
stock options exercisable within sixty (60) days of the date hereof:
Mr. Marino, 300,000 shares; Dr. Nicoloff, 60,067 shares; Mr. Delaney,
48,400 shares; Mr. Green, 13,400 shares, and by all directors and
executive officers as a group, 506,867 shares.
(6) Includes 29,166 shares held by Mr. Marino's minor children.
(7) Includes 13,333 shares held jointly by Dr. Nicoloff and his spouse and
7,500 shares held by Nicoloff Properties.
24
(8) Includes 30,000 shares held by Mary Celeste, L.P. of which Mr. Green is
the General Partner.
CARDIA, INC.
The following table sets forth the number of and percentage of
outstanding shares of Cardia common stock which will be beneficially owned
immediately following the distribution by each person who is known to
beneficially own more than five percent (5%) of the common stock of ABI, by each
director of ABI, by each executive officer of ABI, and by all directors and
executive officers of ABI as a group. This table does not reflect any shares.
Name and Address of Number of Shares Percent
Beneficial Owner Beneficially Owned of Class
- ------------------ ------------------ --------
David B. Johnson ............................... 34,775 7.0%
c/o Miller, Johnson & Kuehn, Incorporated
5500 Wayzata Boulevard
Suite 800 - Eighth Floor
Minneapolis, MN 55416
Aaron Boxer Revocable Trust .................... 26,550 5.3%
c/o Miller, Johnson & Kuehn, Incorporated
5500 Wayzata Boulevard
Suite 800 - Eighth Floor
Minneapolis, MN 55416
Hayden R. Fleming .............................. 19,306 3.9%
14988 N. 78th Way, Suite 200
Scottsdale, AZ 85260
Joseph A. Marino (1) ........................... 202,522 35.2%
501 East Hwy. 13
Burnsville, MN 55337
Demetre Nicoloff, M.D., Ph.D ................... 1,801 *
Patrick Delaney ................................ 0 *
Jeffrey W. Green ............................... 2,595 *
All directors and executive officers
as a group (6 persons) ......................... 206,918 36.0%
- --------------------------
* Less than 1%
(1) Includes 75,000 shares which could be purchased under stock options
exercisable within sixty (60) days of the date hereof.
25
CERTAIN TRANSACTIONS
BACKGROUND AND VALUATION OF THE DISTRIBUTION
At a meeting of the Board of Directors of ABI on August 5, 1998, ABI
management proposed a spin-off of ABI's closure device business to allow ABI to
concentrate its resources on the development of its cardiac output monitoring
system. The spin-off would also allow a separate company to raise its own
capital on the merits of the closure device business and to focus its efforts
and resources on the development of the closure device business. At this
meeting, an independent committee of the Board of Directors, consisting of
Demetre Nicoloff and Jeffrey Green, was appointed to determine all issues
related to the distribution and rights offering.
The independent committee determined, over the course of several
meetings of its members and conferences with ABI management and advisors, to
spin off the closure device business through a distribution to its shareholders
of common stock of Cardia, Inc., a newly-formed, wholly-owned subsidiary of ABI
into which ABI has transferred the closure device business. After consultation
with its advisors, major shareholders and management, the independent committee
decided to sell 125,000 shares of Cardia common stock for $125,000 to Joseph A.
Marino, the Chairman and Chief Executive Officer of ABI and Cardia, and then to
distribute 375,000 shares of Cardia common stock to ABI shareholders on the
basis of one share of Cardia common stock for every 11.563 shares of ABI common
stock outstanding. Following the distribution, 500,000 shares of Cardia common
stock will be outstanding. The independent committee concluded that this stock
sale and distribution was fair and reasonable and in the best interests of ABI
and its shareholders.
The independent committee did not obtain a fairness opinion as to the
valuation of Cardia because of the following factors:
* there is a commonality of interests between the ABI
shareholders and the Cardia shareholders;
* the estimated market capitalization of Cardia immediately
after the distribution is estimated to be $500,000;
* Cardia is a development stage company that is expected to
operate at a loss for the foreseeable future and will require
significant additional working capital;
* there are few comparable enterprises useful for valuing a
company at Cardia' stage of development; and
* following the distribution, ABI will not have to provide
capital or credit to Cardia and will not have any continuing
risk of liability with respect to Cardia's operations.
The independent committee also believed that providing the opportunity
for Mr. Marino to acquire 125,000 shares of Cardia for $125,000 was fair and
reasonable and in the best interests of the shareholders of both ABI and Cardia
based on the following:
* the $1.00 per share paid by Mr. Marino is equal to the per
share valuation of the distribution and is also equal to the
per share price of the rights offering;
* Mr. Marino will be a key factor in the development of Cardia's
business while continuing to be involved in ABI's business;
and
* the success of the rights offering is believed to be dependent
on Mr. Marino's involvement as an executive officer and
significant shareholder of Cardia.
26
DISTRIBUTION AGREEMENT
ABI and Cardia have entered into a Distribution Agreement, dated as of
November 1, 1998, which sets out the parameters for the distribution of Cardia
common stock by ABI and the independent operation of Cardia following the
distribution. This agreement provides that ABI will transfer 375,000 shares of
Cardia common stock to the distribution agent as of the date of this prospectus
for distribution to shareholders of ABI on the record date on the basis of one
share of Cardia common stock for every 11.563 shares of ABI common stock held on
the record date.
The agreement contains, among other things, a number of provisions
describing the timing and method of the distribution, the transfer of the
closure device assets to Cardia, the relationship of the ABI and Cardia
following the distribution, and certain indemnification obligations. The
principal provisions of the agreement (1) obligate ABI to make certain services,
such as accounting and payroll, available to Cardia for a period of twenty-four
months following the distribution, at Cardia's expense, (2) provide that ABI
will make certain information regarding Cardia and the closure device assets
available to Cardia for copying upon request, (3) establish a sublease by Cardia
of a portion of ABI's facilities at fair rental value, (4) obligate each party
to indemnify the other with respect to any claims or actions relating to the
liabilities or business of the other and (5) provide that Cardia shall have
control over all of the operations and assets intended to be transferred to
Cardia, whether or not all actions necessary to transfer the closure device
operations and assets have been completed by the effective date of the
distribution. The agreement also provides for arbitration of any disputes
between the parties with respect to the subject matter of the agreement pursuant
to the Commercial Arbitration Rules of the American Arbitration Association.
TIME SHARING OF EXECUTIVES
Joseph A. Marino and Peter Buonomo, Cardia's Chief Executive Officer
and Vice President, respectively, will be serving as officers and employees of
both ABI and Cardia for an indefinite period of time following the distribution
and the rights offering. They will be paid salaries by each company based on a
percentage of their combined annualized base salaries equal to the percentage of
time they each devote to the business of ABI and Cardia. Although Mr. Marino and
Mr. Buonomo currently expect to spend approximately half of their time on the
business of each company during 1999, there can be no assurance that the actual
allocation of time will not be significantly different.
THE DISTRIBUTION
BACKGROUND AND REASONS FOR THE DISTRIBUTION
Cardia has been formed to pursue the further development and
commercialization of certain transcatheter closure devices. The primary purposes
of the distribution are to enable ABI to conserve its liquid assets to continue
to pursue its cardiac output measurement business, and to enable Cardia to raise
immediately needed working capital through the rights offering of its common
stock which will immediately follow the distribution. The rights offering is
described in more detail below. The distribution is also intended to permit ABI
and Cardia each to (1) adopt strategies and pursue objectives appropriate to its
specific business; (2) enable management to concentrate attention and financial
resources on its core business; (3) make acquisitions and enter into
transactions with strategic partners by issuing its own equity securities; (4)
implement incentive compensation arrangements that are more directly based on
results of operations of its separate business; and (5) be recognized and
evaluated by the financial community as a separate and distinct business.
MANNER OF EFFECTING THE DISTRIBUTION
Applied Biometrics, Inc. will effect the distribution on the
distribution date by delivering 375,000 shares of Cardia common stock, which
represents 75% of the shares outstanding, to the distribution agent for
distribution to ABI shareholders immediately following the expiration and
closing of the rights offering described below. The distribution will be made on
the basis of one share of Cardia common stock for every 11.563 shares of ABI
common stock held as
27
of the close of business on the distribution record date. The Cardia common
stock will be fully paid and nonassessable, and the holders thereof will not be
entitled to preemptive rights or cumulative voting. See "Description of
Securities." It is expected that certificates representing Cardia shares will be
mailed to holders of ABI common stock as soon as practicable after the
expiration of the rights offering.
HOLDERS OF ABI COMMON STOCK SHOULD NOT SEND CERTIFICATES TO
CARDIA, ABI OR THE DISTRIBUTION AGENT. THE DISTRIBUTION AGENT
WILL MAIL THE STOCK CERTIFICATES REPRESENTING CARDIA SHARES
AS SOON AS PRACTICABLE AFTER THE DISTRIBUTION EFFECTIVE DATE.
ABI SHARE CERTIFICATES WILL CONTINUE TO REPRESENT ABI COMMON
SHARES AFTER THE DISTRIBUTION IN THE SAME AMOUNT SHOWN ON THE
CERTIFICATE.
No holder of ABI common stock will be required to pay any cash or other
consideration for the Cardia shares to be received in the distribution or to
surrender or exchange ABI common stock or to take any other action in order to
receive Cardia common stock pursuant to the distribution.
RESULTS OF THE DISTRIBUTION
After the distribution, Cardia will be an independent publicly held
company which will continue to conduct its business of developing, marketing and
selling transcatheter closure devices. Immediately following the distribution,
ABI shareholders, other than Mr. Marino, will own 74.5% of the outstanding
Cardia common stock and Mr. Marino will own 25.5% (including shares to be
distributed with respect to shares of ABI common stock he beneficially owns) of
the outstanding Cardia common stock. Although Cardia common stock will be
eligible for quotation and trading on the OTC Bulletin Board after the
distribution, Cardia common stock is not currently quoted on the OTC Bulletin
Board or listed on any national securities exchange, or approved for quotation
on any quotation system, and there can be no assurance that a public market for
Cardia common stock will develop or provide liquidity. See "Risk Factors - There
is no Current Public Market for Our Common Stock; The Offering Price of Our
Common Stock was Determined Arbitrarily; It is Possible That Our Common Stock
Price Will be Volatile."
THE RIGHTS OFFERING
THE RIGHTS
Cardia will distribute rights to purchase Cardia common stock at a
subscription price of $1.00 per share to the record holders of outstanding
Cardia common stock as of as of the rights record date, at no cost to them.
Cardia will distribute one right for each share of Cardia common stock held on
the rights record date. Each right will entitle its holder to purchase one share
of Cardia common stock. The rights will be evidenced by subscription
certificates. An aggregate of 500,000 shares will be sold if all rights are
exercised. Joseph A. Marino, the Chairman and Chief Executive Officer of ABI and
Cardia, has advised Cardia that he will exercise rights to purchase an aggregate
of 127,522 shares of Cardia common stock and will purchase up to 272,478
additional shares pursuant to the standby subscription guaranty described below.
BASIC SUBSCRIPTION PRIVILEGE
Each right will entitle the holder thereof to receive one share of
Cardia common stock upon payment of the subscription price. Certificates
representing Cardia common stock purchased pursuant to the basic subscription
privilege will be delivered to the subscriber as soon as practicable after the
closing date, irrespective of whether the basic subscription privilege is
exercised before the expiration date. Holders exercising their basic
subscription privilege or oversubscription privilege will not be shareholders of
record with respect to the shares subscribed for until the closing of the rights
offering, which is anticipated to occur five business days after the expiration
date. The term "business day"
28
means any day other than a Saturday or Sunday, that is neither a legal holiday
nor a day on which banking institutions in Minneapolis are authorized or
required by law, regulation or executive order to close.
OVERSUBSCRIPTION PRIVILEGE
Each right also carries the right to subscribe for shares not
subscribed for through the exercise of basic subscription privileges by other
holders, subject to the allocation described below. No holder may exercise the
oversubscription privilege for more than number of shares purchased by that
holder pursuant to his or her basic subscription privilege. If the remaining
shares are not sufficient to satisfy all oversubscription privilege
subscriptions, those shares will be allocated pro rata, subject to the
elimination of fractional shares and the limitation described above, in
proportion to the number of shares each holder exercising the oversubscription
privilege subscribed for pursuant to the basic subscription privilege. Only
holders who exercise the basic subscription privilege in full will be entitled
to exercise the oversubscription privilege. Certificates representing the shares
purchased pursuant to the oversubscription privilege will be delivered to
subscribers as soon as practicable after the closing date and after all
prorations have been effected.
STANDBY SUBSCRIPTION GUARANTY
Mr. Marino has offered Cardia a standby subscription guaranty to
subscribe, at the subscription price, for up to 272,478 shares not purchased in
the rights offering. This guaranty is applicable only if less than 400,000
shares are subscribed for, and is limited to that number of shares necessary to
reach subscriptions for an aggregate of 400,000 shares. Accordingly, following
the rights offering Mr. Marino will beneficially own a minimum of 255,044 shares
of Cardia common stock following the exercise of his rights, and up to 527,522
shares if no other shareholder exercises the basic subscription privilege.
EXPIRATION DATE
The rights will expire at 5:00 p.m., Minneapolis time, on _________,
1999 unless extended by Cardia from time to time. Notwithstanding the foregoing,
the expiration date in no event shall be later than 45 days after the
commencement of the rights offering. After the expiration date, unexercised
rights will be null and void. Cardia will not be obligated to honor any
purported exercise of rights received by the subscription agent after the
expiration date, regardless of when the documents relating to such exercise were
sent.
EXERCISE OF RIGHTS
Rights may be exercised by delivering to the subscription agent, on or
prior to 5:00 p.m., Minneapolis time, on the expiration date, the properly
completed and executed subscription certificate with any required signatures
guaranteed, together with payment in full for any shares being subscribed for.
Such payment in full must be by (1) check or bank draft drawn upon a U.S. bank
or postal, telegraphic or express money order payable to Norwest Bank Minnesota,
N.A. as subscription agent or (2) wire transfer of funds to the account
maintained by the subscription agent for such purpose, provided in each case
that the full amount of such subscription price is received by the subscription
agent in currently available funds prior to or on the expiration date. Payment
of the subscription price will be deemed to have been received by the
subscription agent only upon (a) clearance or any uncertified check, (b) receipt
by the subscription agent of any certified check or bank draft drawn upon a U.S.
bank or of any postal, telegraphic or express money order or (c) receipt of good
funds in the subscription agent's account designated above.
If paying by uncertified personal check, please note that the funds
paid may take at least five business days to clear. Accordingly, holders who
wish to pay the subscription price by means of uncertified personal check are
urged to make payment sufficiently in advance of the expiration date to ensure
that such payment is received and clears by such date and are urged to consider
payment by means of certified or cashier's check, money order or wire transfer
of funds.
29
The address to which the subscription certificates and payment of the
subscription price should be delivered is:
Norwest Bank Minnesota, N.A.
161 North Concord Exchange
P.O. Box 738
South St. Paul, MN 55075-0738
Funds received in payment of the subscription price for the shares
subscribed for pursuant to the oversubscription privilege will be held in a
segregated account pending issuance of such shares. If a holder exercising the
oversubscription privilege is allocated less than all of the shares that such
holder wished to subscribe for, the excess funds paid for shares not issued
shall be returned by mail without interest or deduction as soon as practicable
after the expiration date.
A holder who holds Cardia common stock for the account of others, such
as a broker, a trustee or a depository for securities, should notify the
respective beneficial owners of such shares as soon as possible to ascertain
such beneficial owner's intentions and to obtain instructions with respect to
the rights. If the beneficial owner so instructs, the record holder of such
rights should complete the subscription certificate and submit it to the
subscription agent with the proper payment. In addition, the beneficial owner of
Cardia common stock or rights held through such a holder of record should
contact the holder and request the holder to effect transactions in accordance
with the beneficial owner's instructions.
Unless a subscription certificate (1) provides that the shares be
issued pursuant to the exercise of rights are to be delivered to the holder or
(2) is submitted for the account of any Eligible Guarantor Institution , as
defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended,
signatures on such subscription certificate must be guaranteed by an Eligible
Guarantor Institution.
If either the number of shares being subscribed for pursuant to the
basic subscription privilege is not specified on the subscription certificate,
or the amount of consideration delivered is not enough to pay the subscription
price for all shares stated to be subscribed for, the number of shares
subscribed for will be assumed to be the maximum amount that could be subscribed
for upon payment of such amount. If the number of shares being subscribed for is
not specified, or payment of the subscription price for the indicated number of
rights that are being exercised exceeds the required subscription price, the
payment will be applied , until depleted, to subscribe for shares in the
following order: (i) to subscribe for the number of shares indicated, if any,
pursuant to the basic subscription privilege, (ii) to subscribe for shares until
the basic subscription privilege has been fully exercised with respect to all of
the rights represented by the subscription certificate; and (iii) to subscribe
for additional shares pursuant to the oversubscription privilege, subject to any
applicable proration.
The instructions included in the subscription certificates should be
read carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO
CARDIA.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF
THE RIGHTS HOLDER, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES
AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO
THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., MINNEAPOLIS
TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS TAKE AT LEAST
FIVE BUSINESS DAYS TO CLEAR, THE RIGHTS HOLDER IS STRONGLY URGED TO PAY, OR
ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR
WIRE TRANSFER OF FUNDS.
The closing of the rights offering will occur promptly after the
expiration date. All questions concerning the timeliness, validity, form and
eligibility of any exercise of rights will be determined by Cardia, whose
determinations
30
will be final and binding. Cardia, in its sole discretion, may waive any defect
or irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise of any right.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as Cardia determines
in its sole discretion. Neither Cardia nor the subscription agent will be under
any duty to give notification of any defect or irregularity in connection with
the submission of subscription certificates or incur any liability for failure
to give such notification.
Any questions or requests for assistance concerning the method of
exercising rights or requests for additional copies of this prospectus or the
instructions should be directed to the subscription agent.
NO REVOCATION
ONCE A HOLDER OF RIGHTS HAS EXERCISED THE BASIC SUBSCRIPTION PRIVILEGE,
SUCH EXERCISE MAY NOT BE REVOKED.
SUBSCRIPTION AGENT
Cardia has appointed Norwest Bank Minnesota, N.A. as subscription agent
for the rights offering. Any questions or requests for additional copies of this
prospectus may be directed to the subscription agent at the telephone number and
address below. The subscription agent's address, which is the address to which
the subscription certificates and payment of the subscription price should be
delivered, and the subscription agent's telephone number and facsimile number,
are:
Norwest Bank Minnesota, N.A.
161 North Concord Exchange
P.O. Box 738
South St. Paul, MN 55075-0738
Telephone: (651) 450-4053
Facsimile: (651) 450-4078
MATERIAL UNITED STATES FEDERAL TAX CONSIDERATIONS
The following general discussion summarizes certain of the material
U.S. Federal Income Tax aspects of the distribution and the rights offering.
This discussion is a summary for general information only and does not consider
all aspects of U.S. Federal Income Tax that may be relevant to a Cardia
shareholder or an ABI shareholder in light of such shareholder's personal
circumstances.
This discussion is limited to the U.S. Federal Income Tax consequences
relevant to (1) an ABI shareholder receiving shares of Cardia common stock in
the distribution and (2) a Cardia shareholder receiving rights and Cardia common
stock acquired upon the exercise of rights. This discussion does not address the
tax consequences to a holder that is not a U.S. holder or is not an individual.
This discussion is also limited to (a) ABI shareholders who hold ABI common
stock as capital assets within the meaning of Section 1221 of the Internal
Revenue Code of 1986, as amended and (b) Cardia shareholders who will hold
rights and Cardia common stock acquired upon the exercise of rights as capital
assets within the meaning of Section 1221 of the Code.
This discussion is based on the Code, existing and proposed regulations
thereunder and current administrative rulings and "decisions." All of the
foregoing is subject to change, possibly on a fast track basis, and any such
change could affect the continuing validity of this discussion.
EACH ABI SHAREHOLDER AND CARDIA SHAREHOLDER IS STRONGLY URGED TO
CONSULT HIS OR HER OWN TAX ADVISOR CONCERNING THE APPLICATION OF FEDERAL INCOME
TAX LAWS, AS WELL AS THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION
31
APPLICABLE TO HIS OR HER PARTICULAR SITUATION. THE CONTENTS OF THIS PROSPECTUS
ARE NOT TO BE CONSTRUED AS LEGAL, BUSINESS OR TAX ADVICE. EACH ABI SHAREHOLDER
AND CARDIA SHAREHOLDER SHOULD CONSULT HIS OR HER OWN ATTORNEY, BUSINESS ADVISOR
AND/OR TAX ADVISOR AS TO LEGAL, BUSINESS OR TAX ADVICE.
FEDERAL INCOME TAXATION OF THE DISTRIBUTION
An ABI shareholder will be treated as receiving a distribution from ABI
in an amount equal to the fair market value of the Cardia common stock received.
While the following should not be regarded as tax advice to ABI shareholders,
and shareholders should obtain advice from their own tax advisors, ABI
shareholders will not recognize dividend income as a result of the distribution
unless the fair market value of the Cardia common stock received in the
distribution exceeds the aggregate basis of ABI common stock held by a
shareholder immediately before the distribution. Any shareholder recognizing
such a gain will recognize a gain equal to such excess and the gain will
constitute a capital gain if such shareholder's ABI common stock with respect to
which the Cardia common stock is received is held as a capital asset on the date
of the distribution. For those ABI shareholders who do not recognize any gain on
the distribution, the aggregate basis of the shares of ABI common stock and
Cardia common stock held immediately after the distribution will be the same as
the basis of the ABI common stock held immediately before the distribution. That
aggregate basis will be first allocated to the Cardia common stock in an amount
equal to its fair market value on the date of the distribution. The remaining
basis will be allocated to the ABI common stock. For those ABI shareholders that
do recognize gain on the distribution, the basis of the Cardia common stock held
immediately after the distribution will equal its fair market value on the date
of the distribution and the ABI common stock will have a basis of zero. ABI has
received the opinion of Lindquist & Vennum P.L.L.P. that ABI will not recognize
any income for federal or state income tax purposes by reason of the
distribution because ABI's tax losses in the year of the distribution exceed the
amount by which the fair market value of the Cardia common stock exceeds, if
any, ABI's basis in that stock.
FEDERAL INCOME TAXATION OF THE RIGHTS OFFERING
DISTRIBUTION OF THE RIGHTS. Holders of Cardia common stock immediately
following the distribution will not recognize taxable income for federal income
tax purposes in connection with the receipt of the rights. Cardia has received
the opinion of Lindquist & Vennum P.L.L.P. that Cardia will not recognize any
income for federal income tax purposes by reason of the rights offering.
STOCKHOLDER BASIS AND HOLDING PERIOD OF THE RIGHTS. Except as provided
in the following sentence, the basis of the rights received by a Cardia
shareholder as a distribution with respect to such shareholder's Cardia common
stock will be zero. If, however, either (i) the fair market value of the rights
on the date that the rights are distributed is 15% or more of the fair market
value of the shares of Cardia common stock with respect to which they are
received or (ii) the shareholder properly elects, in his or her Federal Income
Tax return for the taxable year in which the rights are received, to allocate
basis, then part of his or her basis in shares of Cardia common stock will be
allocated between the Cardia common stock and the rights in proportion to the
fair market value of each on the date of the rights offering.
The holding period of a Cardia shareholder with respect to the rights
received as a distribution on such shareholder's Cardia common stock will
include the shareholder's holding period for the Cardia common stock with
respect to which the rights were issued.
LAPSE OF THE RIGHTS. Cardia shareholders who allow the rights received
by them to lapse will not recognize any gain or loss, and no adjustment will be
made to the basis of Cardia common stock, if any, owned by such shareholders.
EXERCISE OF THE RIGHTS; BASIS AND HOLDING PERIOD OF SHARES. Cardia
shareholders will not recognize any gain or loss upon the exercise of the
rights. The basis of the Cardia common stock acquired through exercise of the
rights will be equal to the sum of the price paid therefor and the shareholder's
basis in such rights, if any.
32
A Cardia shareholder's holding period for the Cardia common stock
acquired through exercise of the rights will begin on the date the rights are
exercised.
SALE OF SHARES. Sale of shares of Cardia common stock acquired through
exercise of the rights will result in the recognition of gain or loss to a
Cardia shareholder in an amount equal to the difference between the amount
realized on the sale and the shareholder's adjusted basis in the Cardia common
stock. Gain or loss on the sale of such shares will be classified as capital
gain or loss taxable based on the shareholder's holding period for the Cardia
common stock.
BACKUP WITHHOLDING. A U.S. holder of rights or Cardia common stock may
be subject to "backup withholding" at a rate of 31% with respect to certain
"reportable payments," including dividends, payments and, under certain
circumstances, proceeds from the disposition of Cardia common stock. These
backup withholding rules apply for a U.S. holder who, among other things, (i)
fails to furnish a social security number or other taxpayer identification
number, a TIN, certified under penalties of perjury within a reasonable time
after the request therefor, (ii) furnishes an incorrect TIN, (iii) fails to
properly report interest or dividends, or (iv) under certain circumstances,
fails to provide a certified statement, signed under penalties of perjury, that
the TIN furnished is the correct number and that such U.S. holder is not subject
to backup withholding. A U.S. holder who does not provide Cardia with his, her,
or its correct TIN also may be subject to penalties. Any amount withheld from a
payment to a U.S. holder under the backup withholding rules is creditable
against the U.S. holder's Federal Income Tax liability, provided the required
information is furnished to the Internal Revenue Service. Backup withholding
will not apply, however, with respect to payments made to certain holders,
including corporations and tax-exempt organizations, provided their exemptions
from backup withholding is properly established.
Cardia will report to the U.S. holders of rights or Cardia common stock
and to the Internal Revenue Service the amount of any "reportable payments" for
each calendar year in the amount of tax withheld, if any, with respect to such
payments.
DESCRIPTION OF SECURITIES
The following summary of the terms of the capital stock of Cardia does
not purport to be complete and is subject to and qualified in its entirety by
reference to Cardia's Articles of Incorporation and By-Laws, copies of which are
exhibits to the registration statement of which this prospectus is a part. See
"Available Information."
GENERAL
The Articles of Incorporation of Cardia provide that Cardia may issue
up to 10,000,000 shares of common stock, $0.01 par value per share and up to
1,000,000 shares of undesignated preferred stock, $0.01 par value per share.
After giving effect to the distribution, there will be 500,000 shares of Cardia
common stock issued and outstanding, and approximately 1200 beneficial holders
of such shares.
COMMON STOCK
All shares of Cardia common stock which will be outstanding after the
distribution and the rights offering will be duly authorized, fully paid and
non-assessable. Holders of Cardia common stock are entitled to receive dividends
on such stock if, as and when authorized and declared by the Board of Directors
of Cardia out of assets legally available therefor, and to share ratably in the
assets of Cardia legally available for distribution to its shareholders in the
event of its liquidation, dissolution or winding up after payment of or adequate
provision for all known debts and liabilities of Cardia.
Each outstanding share of Cardia common stock entitles the holder to
one vote on all matters submitted to a vote of shareholders, including the
election of directors and, except as discussed below under "Undesignated Stock,"
33
the holders of such shares will possess the exclusive voting power. There is no
cumulative voting in the election of directors, which means that the holders of
the majority of the outstanding shares of Cardia common stock can elect all of
the directors then standing for election and the holders of the remaining shares
will not be able to elect any directors.
Holders of Cardia common stock have no preference, conversion,
exchange, sinking fund, redemption or appraisal rights and have no preemptive
rights to subscribe for any securities of Cardia. Shares of Cardia common stock
will have equal dividend, liquidation and other rights.
UNDESIGNATED PREFERRED STOCK
The Board of Directors has the authority to issue up to 1,000,000
shares of undesignated preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions granted to or imposed upon any
unissued undesignated shares and to fix the number of shares constituting any
series and the designations of such series, without any further vote or action
by the shareholders. The Board of Directors, without shareholder approval, has
the power to issue undesignated shares with voting and conversion rights which
could adversely affect the voting power of the holders of common stock. The
issuance of undesignated shares may have the effect of delaying, deferring or
preventing a change in control of Cardia by way of a merger, sale or exchange of
assets or a similar transaction. Cardia has no present plans to issue any
undesignated shares.
MINNESOTA ANTI-TAKEOVER LAW
Cardia is governed by the provisions of Sections 302.A.671 and
302.A.673 of the Minnesota Business Corporation Act. In general, Section
302.A.671 provides that the shares of the corporation acquired in a "control
share acquisition" have no voting rights unless such rights are approved in a
prescribed manner. A "control share acquisition" is an acquisition, directly or
indirectly, of beneficial ownership of shares that would, when added to all
other shares beneficially owned by the acquiring person, entitle the acquiring
person to have voting power of 20% or more in the election of directors. In
general, Section 302.A.673 prohibits a publicly held Minnesota corporation from
engaging in a "business combination" with an "interested shareholder" for a
period of four years after the date of the transaction in which the person
became an interested shareholder, unless the business combination is approved in
a prescribed manner. "Business combinations" include mergers, asset sales and
other transactions resulting in a financial benefit to the interested
shareholder. An "interested shareholder" is a person who is the beneficial
owner, directly or indirectly, of 10% or more of the corporation's voting stock
or who is an affiliate or associate of the corporation and at any time within
four years prior to the date in question was the beneficial owner, directly or
indirectly, of 10% or more of the corporation's voting stock.
Cardia is also governed by the provisions of Section 302.A.675 of the
Minnesota Business Corporation Act which, in general, provides that an offeror
may not acquire shares of a publicly held Minnesota corporation within two years
following the last purchase of shares pursuant to a takeover offer (including
purchase, merger and other transactions), unless the selling shareholder is
given, at the time of the acquisition, a reasonable opportunity to dispose of
the shares through the offer upon substantially equivalent terms as those
provided in the earlier takeover offer, unless the acquisition is approved in a
prescribed manner.
TRANSFER AGENT
Norwest Bank Minnesota, N.A. is the Transfer Agent and Registrar for
Cardia common stock.
34
SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial number of shares of Cardia common stock, or
the perception that such sales could occur, could adversely affect prevailing
market prices for such shares. In addition, any such sale or perception could
make it more difficult for Cardia to sell equity securities or equity related
securities in the future at a time and price that Cardia deems appropriate. Upon
consummation of the distribution and rights offering, assuming all of the rights
are exercised, Cardia will have a total of 1,000,000 shares of common stock
outstanding, of which 875,000 shares issued in the distribution and offered in
connection with the rights offering will be eligible for immediate sale in the
public market without restriction, unless they are held by "affiliates" of
Cardia within the meaning of Rule 144 of the Securities Act. In addition, there
will be outstanding 125,000 shares of Cardia common stock which will be
"restricted" securities within the meaning of Rule 144 under the Securities Act
and 200,000 shares of common stock reserved for issuance upon exercise or
vesting of stock-based compensation grants made or to be made under Cardia's
1998 Omnibus Stock Incentive Plan.
In general, under Rule 144 as currently in effect, a shareholder is
entitled to sell restricted securities within any three month period in an
amount that does not exceed the greater of 1% of the then outstanding shares of
Cardia common stock or the average weekly trading volume of the shares of Cardia
common stock during the four calendar weeks preceding the date on which notice
of the sale is filed with the Commission if one year has elapsed since the date
of acquisition of the securities. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about Cardia. If two years have elapsed since the
date of acquisition of restricted securities, and the seller has not been an
"affiliate" of Cardia, as that term is defined under the Securities Act, at any
time during the three months preceding a sale, such person would be entitled to
sell such shares in the public market pursuant to Rule 144 without regard to the
volume limitations, manner of sale provisions, public information requirements
or notice requirements of Rule 144.
No prediction can be made as to the effect, if any, that future sales
of shares, or the availability of shares for future sale, will have on the
market price for Cardia common stock prevailing from time to time. Sales of
substantial amounts of Cardia common stock, or the perception that such sales
could occur, may adversely affect the prevailing market price of Cardia common
stock.
PLAN OF DISTRIBUTION
The shares of Cardia common stock being issued in the distribution are
being distributed by ABI directly to the holders of ABI common stock on the
distribution record date, on the basis of one share of Cardia common stock for
each 11.563 shares of ABI common stock held on the distribution record date.
Cardia intends to distribute rights and copies of this prospectus to its
shareholders of record on the rights record date promptly following the
effective date of the registration statement of which this prospectus forms a
part.
Holders of rights who desire to subscribe for the purchase of shares of
Cardia common stock in the rights offering are urged to complete, date and sign
the subscription certificate and return it to the subscription agent on or
before the expiration date, together with payment in full for the subscribed for
shares.
Certain employees, officers or directors of ABI or Cardia may solicit
responses from holders of subscription certificates, but such individuals will
not receive any commissions or compensation for such services other than their
normal employment compensation.
35
INDEPENDENT ACCOUNTANTS
The financial statements of Cardia as of December 31, 1997 and for the
period then ended included in this prospectus have been audited by
PricewaterhouseCoopers LLP, independent accountants, as stated in their report
appearing herein.
LEGAL MATTERS
The validity of the rights and the shares of Cardia common stock
offered hereby will be passed upon for Cardia by Lindquist & Vennum P.L.L.P.,
Minneapolis, Minnesota. Patrick Delaney, a partner in Lindquist & Vennum, is the
Secretary and a director of ABI and the Secretary of Cardia.
36
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Accountants.................................................................. F-2
Balance Sheet as of December 31, 1997 and September 30, 1998 (unaudited)........................... F-3
Statements of Operations for the periods November 2, 1997 (inception) to December 31, 1997, the
nine months ended September 30, 1998 (unaudited), and from November 2, 1997 (inception) to
September 30, 1998 (unaudited).................................................................... F-4
Statements of Cash Flows for the periods November 2, 1997 (inception) to December 31, 1997, the
nine months ended September 30, 1998 (unaudited), and from November 2, 1997 (inception) to
September 30, 1998 (unaudited).................................................................... F-5
Notes to Financial Statements for the periods November 2, 1997 (inception) to December 31, 1997,
the nine months ended September 30, 1998 (unaudited), and from November 2, 1997 (inception) to
September 30, 1998 (unaudited).................................................................... F-6
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Cardia, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations and of cash flows present fairly, in all material respects, the
financial position of Cardia, Inc. (the Company; formerly the Transcatheter
Closures Business of Applied Biometrics, Inc.) as of December 31, 1997 and the
results of its operations and its cash flows for the period from November 2,
1997 (inception) to December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluation of the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company requires additional financing which raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to this matter are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
November 5, 1998
F-2
CARDIA, INC.
(FORMERLY THE TRANSCATHETER CLOSURES BUSINESS OF APPLIED BIOMETRICS, INC.)
BALANCE SHEET
- ------------------------------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30,
1997 1998
(UNAUDITED)
ASSETS
Current assets:
Inventories $ -- $ 53,639
Prepaid expenses and other current assets -- 13,009
----------- -----------
Total current assets -- 66,648
Property and equipment, net -- 20,481
Intangible assets 100,000 87,500
----------- -----------
Total assets $ 100,000 $ 174,629
=========== ===========
LIABILITIES AND NET INVESTMENT BY
APPLIED BIOMETRICS, INC
Current liabilities:
Trade accounts payable $ -- $ 29,226
----------- -----------
Total current liabilities -- 29,226
Commitments and contingencies
Net investment by Applied Biometrics, Inc. 100,000 145,403
----------- -----------
Total liabilities and net investment by
Applied Biometrics, Inc. $ 100,000 $ 174,629
=========== ===========
F-3
CARDIA, INC.
(FORMERLY THE TRANSCATHETER CLOSURES BUSINESS OF APPLIED BIOMETRICS, INC.)
STATEMENT OF OPERATIONS
- ----------------------------------------------------------------------------------------------------------
FOR THE PERIOD FROM FROM
NOVEMBER 2, 1997 NOVEMBER 2, 1997
(INCEPTION) TO NINE MONTHS ENDED (INCEPTION) TO
DECEMBER 31, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
(UNAUDITED) (UNAUDITED)
Net sales $ -- $ 77,640 $ 77,640
Cost of sales -- 15,732 15,732
------------ ------------ ------------
Gross profit -- 61,908 61,908
Operating expenses:
Selling, general and administrative 16,409 370,492 386,901
Research and development -- 305,783 305,783
Acquisition of in-process research
and development 441,457 -- 441,457
------------ ------------ ------------
457,866 676,275 1,134,141
------------ ------------ ------------
Net loss $ (457,866) $ (614,367) $ (1,072,233)
============ ============ ============
F-4
CARDIA, INC.
(FORMERLY THE TRANSCATHETER CLOSURES BUSINESS OF APPLIED BIOMETRICS, INC.)
STATEMENT OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD FROM FROM
NOVEMBER 2, 1997 NOVEMBER 2, 1997
(INCEPTION) TO NINE MONTHS ENDED (INCEPTION) TO
DECEMBER 31, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net loss $ (457,866) $ (614,367) $ (1,072,233)
Adjustments to reconcile net loss to
net cash from operating activities:
Non-cash acquisition of in-process
research and development 441,457 -- 441,457
Depreciation and amortization -- 14,161 14,161
Cash flows provided by (used for) changes in:
Inventories -- (53,639) (53,639)
Prepaid expenses and other
current assets -- (13,009) (13,009)
Accounts payable -- 29,226 29,226
------------ ------------ ------------
Net cash flows used for
operating activities (16,409) (637,628) (654,037)
------------ ------------ ------------
Cash flows from investing activities:
Cash expended for purchase of
product line (31,457) -- (31,457)
Purchase of property and equipment -- (22,142) (22,142)
------------ ------------ ------------
Net cash flows used for
investing activities (31,457) (22,142) (53,599)
------------ ------------ ------------
Cash flows from financing activities:
Cash received from Applied
Biometrics, Inc. 47,866 659,770 707,636
------------ ------------ ------------
Net cash flows provided by
financing activities 47,866 659,770 707,636
------------ ------------ ------------
Cash and cash equivalents:
Cash, beginning of period -- -- --
------------ ------------ ------------
Cash, ending of period $ -- $ -- $ --
============ ============ ============
F-5
CARDIA, INC.
(FORMERLY THE TRANSCATHETER CLOSURES BUSINESS OF APPLIED BIOMETRICS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND OPERATIONS
BACKGROUND
Cardia, Inc. (Cardia or the Company) was formed in October of 1998 as a
subsidiary of Applied Biometrics, Inc. (ABI). Prior to that time, the
entity was operated as the Transcatheter Closures Business (the Business)
of ABI. Cardia intends to develop, manufacture, and market Transcatheter
Closure devices (TCD's) which are based on intellectual property rights
ABI acquired in November 1997.
TCD's are a new generation of implantable device technologies which are
delivered through a catheter to permanently repair certain cardiac
defects in children and adults. Cardia is in the development stage with
principal activities related to product development.
ACQUISITION OF TECHNOLOGY
ABI acquired the rights to the TCD technology in an acquisition
consummated in November 1997. The purchase price for the acquired
technology was approximately $542,000 and was comprised of 85,000 shares
of ABI stock and $32,000 of related acquisition costs. The acquired
technologies consisted of a pediatric product which has been subsequently
market released internationally on a limited basis and rights to another
product with therapeutic applications to adults which required
substantial additional development. The purchase price allocation
included approximately $100,000 to capitalizable intangible assets
related to the developed product and $442,000 to in-process research and
development which was charged to expense in 1997 as the underlying
research and development projects had not reached technological
feasibility and had no alternative future use.
The purchase agreement also requires the payment of royalties equal to 3%
of the net sales price of Vessel/Septal Occluder devices sold, payable on
a quarterly basis for a period of six years.
BASIS OF PRESENTATION
The accompanying financial statements include the specifically
identifiable net assets of the transcatheter closure operations of ABI
and the results of operations of that business from the point of ABI's
acquisition of the underlying technology in November 1997.
Costs related to functions performed by ABI have been charged to the
Business. Such costs allocated by the parent include certain general and
administrative costs such as personnel costs, legal costs and costs of
the finance function. These allocations of costs were provided at rates
which management considers to reflect the incremental costs of providing
these services and allocations of costs based on utilization of shared
services by the Business. The terms of these transactions and allocations
of costs were determined between related parties and may therefore differ
from terms which would have occurred between wholly unrelated parties or
had the Business operated as a completely autonomous entity since
inception.
ABI uses a centralized approach to cash management and the financing of
its operations. As a result, cash and equivalents, and the related
investment income and expense were not allocated to the Business in the
financial statements. The Business' financing requirements are
represented by cash transactions with Applied Biometrics, Inc. and are
reflected in the "Net investment by
F-6
CARDIA, INC.
(FORMERLY THE TRANSCATHETER CLOSURES BUSINESS OF APPLIED BIOMETRICS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Applied Biometrics, Inc." account. Activity in the net investment account
relates to net cash flows of the Business as well as changes in the
assets and liabilities allocated to the Business.
The financial information included herein may not necessarily be
indicative of the financial position, results of operations or cash flows
of the Business in the future or what the financial position, results of
operations or cash flows would have been if the Business had been a
separate, independent company during the periods presented.
ABILITY TO OPERATE AS A GOING CONCERN
The Company is in its initial stages of operations and will require
additional capital to fund its ongoing operations. The Company is
currently in a Rights offering which when combined with the proceeds from
an equity subscription by the Company's Chief Executive Officer may yield
maximum proceeds of approximately $625,000.
Management expects that available funds will be sufficient for an
estimated period of six months, at which time the Company intends to
raise additional capital through the issuance of equity, debt, or a
combination of the two. There can be no assurance, however, that
additional capital will be available on terms acceptable to the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL DATA (UNAUDITED)
The financial information presented as of September 30, 1998 and for the
nine month period then ended, including that set forth in the notes to
financial statements, is unaudited. In the opinion of management, this
financial information reflects the adjustments necessary for a fair
presentation of the financial information for such period. These
adjustments consist of normal, recurring items. The results of operations
for the nine month period ended September 30, 1998 should not necessarily
be taken as indicative of the results of operations that may be expected
for the entire year 1998.
FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
The Business' financial instruments consist of short-term trade
receivables and payables for which the current carrying amounts
approximate fair market value.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from these estimates.
INVENTORY
Inventory is stated at the lower of cost (first-in-first-out basis) or
market.
F-7
CARDIA, INC.
(FORMERLY THE TRANSCATHETER CLOSURES BUSINESS OF APPLIED BIOMETRICS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost with depreciation computed using
the straight-line method over the estimated useful lives of the assets.
Expenditures for additions and improvements are capitalized while repair
and maintenance costs are expensed as incurred.
INTANGIBLE ASSETS
The cost of acquired intangible assets is capitalized and amortized on a
straight-line basis over an estimated useful life of six years. The
recoverability of unamortized intangible assets is assessed on an ongoing
basis by comparing discounted future cash flows from the related product
to net book value.
REVENUE RECOGNITION
Revenue is recognized upon shipment of goods to customers.
CONCENTRATION OF CREDIT RISK
The Company does not believe it is subject to a concentration of credit
risk.
RESEARCH AND DEVELOPMENT
The costs of research and development are expensed as incurred.
3. PROPERTY AND EQUIPMENT
The cost of property and equipment and the estimated useful lives are as
follows:
ESTIMATED DECEMBER 31, SEPTEMBER 30,
USEFUL LIFE 1997 1998
(UNAUDITED)
Furniture and fixtures 5 years $ -- $ 8,375
Machinery and equipment 5 years -- 13,767
----------- -----------
-- 22,142
Less accumulated depreciation -- (1,661)
----------- -----------
$ -- $ 20,481
=========== ===========
4. INTANGIBLE ASSETS
Intangible assets are comprised as follows:
ESTIMATED DECEMBER 31, SEPTEMBER 30,
USEFUL LIFE 1997 1998
(UNAUDITED)
Intangible assets 6 years $ 100,000 $ 100,000
Less accumulated amortization -- (12,500)
----------- -----------
$ 100,000 $ 87,500
=========== ===========
F-8
CARDIA, INC.
(FORMERLY THE TRANSCATHETER CLOSURES BUSINESS OF APPLIED BIOMETRICS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. INCOME TAXES
The Business has not been allocated any tax benefit on the results of its
operations since inception. As the Business was part of the consolidated
tax return of ABI until its formation in October 1998, no losses prior to
that date are available for carryforward to future periods.
At the date of the formation of Cardia, the Company will have available
net temporary differences to offset taxable income in future periods. For
tax purposes, all acquired technology of the Business is capitalized and
amortized over a life of 15 years. Such future tax benefits approximate
$140,000. A valuation allowance has been established for the entire
potential future tax benefit as its realization is not presently assured.
6. NET INVESTMENT BY APPLIED BIOMETRICS, INC.
Changes in the net investment by Applied Biometrics, Inc. during the
period from November 2, 1997 to December 31, 1997 and for the nine months
ended September 30, 1998 (unaudited) are as follows:
Balance at inception $ --
Purchase of Transcatheter Closure Product Line, November 2, 1997 557,866
Net loss for the period from November 2, 1997 to December 31, 1997 (457,866)
----------
Balance December 31, 1997 100,000
Net amounts received from Applied Biometrics, Inc. 659,770
Net loss for the nine month period ended September 30, 1998 (614,367)
----------
Balance September 30, 1998 $ 145,403
==========
7. CAPITALIZATION
The Board of Directors of ABI has approved a plan to distribute ABI's
interest in the Company as a dividend to the shareholders of ABI (the
Distribution). Under the plan, ABI shareholders will receive one share of
Cardia common stock for every 11.563 shares of ABI common stock.
Concurrent with the Distribution, the Company will also sell 125,000
shares of Cardia common stock at a price of $1 per share to an officer of
the Company. The following is a pro forma presentation of shareholders'
equity of the Company at September 30, 1998 reflecting the intended
distribution of ABI's interest in the Company to shareholders of ABI and
the sale of shares to an officer of the Company:
(UNAUDITED)
Common stock, $0.01 par value; 10,000,000 shares authorized;
500,000 shares issued and outstanding $ 5,000
Undesignated preferred stock; $0.01 per par value; 1,000,000
shares authorized --
Additional paid-in capital 265,403
----------
Total shareholders' equity $ 270,403
==========
F-9
CARDIA, INC.
(FORMERLY THE TRANSCATHETER CLOSURES BUSINESS OF APPLIED BIOMETRICS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Subsequent to the Distribution, Cardia will commence a rights offering of
its common stock to sell an aggregate of 500,000 shares of stock on the
basis of one right for each share of Cardia stock held by a shareholder
immediately after the Distribution.
F-10
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 302A.521 of the Minnesota Business Corporation Act provides
that, unless prohibited or limited by a corporation's articles of incorporation
or bylaws, a corporation must indemnify its current and former officers,
directors, employees and agents against reasonable expenses (including
attorneys' fees), judgments, penalties, fines and amounts paid in settlement and
which were incurred in connection with actions, suits, or proceedings in which
such person are parties by reason of the fact that they are or were an officer,
director, employee or agent of the corporation, if they (i) have not been
indemnified by another organization, (ii) acted in good faith, (iii) received no
improper personal benefit, (iv) in the case of a criminal proceeding, had no
reasonable cause to believe the conduct was unlawful, and (v) reasonably
believed that the conduct was in the best interests of the corporation. Section
302A.521 also permits a corporation to purchase and maintain insurance on behalf
of its officers, directors, employees and agents against any liability which may
be asserted against, or incurred by, such persons in their capacities as
officers, directors, employees and agents against any liability which may be
asserted against, or incurred by, such persons in their capacities as officers,
directors, employees or agents of the corporation, whether or not the
corporation would have been required to indemnify the person against the
liability under the provisions of such section.
Article VIII of the Bylaws of Cardia provides that the directors,
officers and employees of Cardia and other persons serving at the request of
Cardia shall be indemnified to the fullest extent permitted by Section 302A.521
of the Minnesota Business Corporation Act.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be borne by
Applied Biometrics, Inc. in connection with the issuance and distribution of the
shares of Cardia common stock offered hereby:
SEC registration fee................................ $ 214.17
Legal fees and expenses............................. 60,000.00
Accounting fees and expenses........................ 15,000.00
Blue Sky fees and expenses.......................... 2,000.00
Printing expenses................................... 10,000.00
Transfer agent fees and expenses.................... 7,500.00
Miscellaneous....................................... 1,285.83
-----------
TOTAL...................................... $ 96,000.00
===========
Each amount set forth above, except the SEC registration fee, is estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, Cardia has sold the following securities
pursuant to exemptions from registration under the Securities Act of 1933, as
amended (the "Securities Act"):
In October of 1998 Cardia sold 375,000 shares of its common stock to
Applied Biometrics, Inc.
Concurrently with the distribution, Cardia sold 125,000 shares of its
common stock to Joseph A. Marino, Cardia's Chairman and Chief Executive Officer.
The above transactions were made in reliance upon the exemption from
registration provided under
Section 4(2). The purchasers of such shares were acquired by them for their own
account and not with a view to any distribution thereof to the public. The
certificates evidencing the shares bear a legend stating that the shares may not
be offered, sold or transferred other than pursuant to an effective registration
statement under the Securities Act, or an exemption from such registration
requirements.
ITEM 27. EXHIBITS
EXHIBIT
NO. DESCRIPTION
- ------- -----------
2.1 Distribution Agreement dated as of November 1, 1998 between Applied
Biometrics, Inc. and Cardia, Inc.
3.1* Articles of Incorporation of Cardia, Inc.
3.2* By-Laws of Cardia, Inc.
4.1 Articles and By-Laws of Cardia, Inc., incorporated by reference to
Exhibit Nos. 3.1 and 3.2 above.
4.2 Specimen stock certificate for the Common Stock of Cardia, Inc., $0.01
par value per share.
4.3 Form of Rights Subscription Certificate
5.1 Opinion of Lindquist & Vennum P.L.L.P. regarding the validity of the
Rights and the shares of Common Stock of Cardia, Inc. to be issued
upon exercise of the Rights (including consent) (to be filed by
amendment).
8.1 Opinion of Lindquist & Vennum P.L.L.P. regarding certain tax matters
(including consent) (to be filed by amendment).
10.1 Cardia, Inc. 1998 Incentive Stock Option Plan (to be filed by
amendment).
10.2 Standby Subscription Guaranty of Joseph A. Marino dated as of _____,
1999 (to be filed by amendment).
23.1* Consent of PricewaterhouseCoopers LLP, independent accountants.
23.2 Consent of Lindquist & Vennum P.L.L.P., incorporated by reference to
Exhibit No. 5.1 above.
23.3 Consent of Lindquist & Vennum P.L.L.P., incorporated by reference to
Exhibit No. 8.1 above.
27.1 Financial Data Schedule.
- ------------------
* Denotes documents filed herewith
ITEM 28. UNDERTAKINGS
(a) The undersigned small business issuer hereby undertakes to provide
certificates in such denominations and registered in such names as required to
permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, (the "Act") may be permitted to directors,
officers, and controlling persons of the small business issuer pursuant to the
provisions summarized in Item 24 above, or otherwise, the small business issuer
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the small
business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit, or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, the small
business issuer will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(c) The undersigned small business issuer further undertakes to:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) Reflect in the prospectus any facts or events
which, individually or together, represent a
fundamental change in the information in the
registration statement.
(iii) Include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement
of the securities offered, and the offering of the securities
at that time to be the initial BONA FIDE offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the
end of the offering.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Company certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of
Minneapolis, State of Minnesota, on January 19, 1999.
CARDIA, INC.
By: /s/ Joseph A. Marino
-----------------------------------------
Its: Chief Executive Officer
----------------------------------------
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed on January 19, 1999 by the following persons
in the capacities stated.
Signature Title
- --------- -----
/s/ Joseph A. Marino Chief Executive Officer, Treasurer and Director
- ------------------------------ (principal executive officer and principal
accounting officer)
/s/ Thomas E. Brust Director
- ------------------------------
/s/ Christopher Turnbull Director
- ------------------------------